* China inflation at 7-month high; cuts room for stimulus
* Brazil real may test 2-per-dollar level soon
* Brazil real falls 0.3 pct; Mexico peso drops 0.36 percent
By Walter Brandimarte
RIO DE JANEIRO, Jan 11 Latin American currencies
weakened on Friday as investors worried that China, the main
consumer of the region's commodity exports, will have limited
room to stimulate its economy because of rising inflation.
Losses were limited as many analysts remain bullish about
Latin American currencies, either on expectations of solid
economic performance, as is the case in Mexico, or because of
concerns over inflation, as in Brazil.
After a good rally so far this year, however, some investors
seemed ready to pocket part of those gains. The profit taking
was triggered by data showing inflation in China accelerated to
a seven-month high in December.
The Mexican peso dropped 0.36 percent to 12.6500 per
dollar, still holding on to gains of about 1.7 percent so far in
the year. It closed on Thursday near a 10-month high after data
showed the country's economy accelerated in October.
But data released on Friday revealed that Mexico's
industrial output in November missed expectations for a stronger
rebound, despite edging up to a five-month high.
The Brazilian real lost 0.3 percent to 2.035
per dollar, still up 0.25 percent since Jan. 1. As inflation in
Brazil remains above the center of a government target range,
investors bet the central bank would keep the real stronger than
2.05 per dollar to avoid a pass-through to prices.
Some even believe policymakers might allow the real to gain
slightly past 2 per dollar - the lower limit of a de facto
trading range where the real has been confined since July.
"The balance of risks has shifted towards inflation," JP
Morgan analysts said in a research note. "A persistent and
broad-based weakness of the U.S. dollar could provide a cue for
an eventual test of the 2 reais-per-dollar level."
Latin American FX prices at 2100 GMT:
Currencies daily % YTD %
Brazil real 2.035 0.3 0.25
Mexico peso 12.6500 -0.36 1.7
Argentina peso* 7.1800 0.97 -5.57
Chile peso 472.2000 -0.30 1.38
Colombia peso 1,763.3700 -0.02 0.15
Peru sol 2.5430 0.28 0.31
* Argentine peso's rate between