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* U.S. consumer data beats expectations, lifts Mexico peso
* Brazil minister moves to limit government spending
* Brazil real, Chile peso, Colombia peso rise.
By Jeb Blount/Jean Luis Arce
RIO DE JANEIRO/MEXICO CITY, Aug 29 (Reuters) - Latin American currencies gained against the U.S. dollar on Monday, led by Mexico's peso, after better-than-expected U.S. economic activity reduced concern that the world's largest economy is entering another recession.
U.S. consumer spending USGPCS=ECI rose 0.8 percent in July, its fastest pace in five months, the U.S. Commerce Department said on Monday. The result beat the 0.5 percent expected by 59 economists surveyed by Thomson Reuters ECONALLUS. For more see [ID:nN1E77S0BS].
The United States is responsible for about 80 percent of Mexico's export earnings and is the largest or second-largest trading partner of most Latin American countries.
"When you get news of growth in the U.S., that's better for the peso," said Marcelo Salomon, chief economist for Brazil and Mexico at Barclay's Capital in New York. "Concern about the United States going into recession would have been bad news not just for Mexico but for the rest of Latin America as well."
Mexico's peso MXN=D2 strengthened 0.66 percent to 12.4139 to the U.S. dollar.
The gains were likely aided by technical factors. Net speculative bets the peso will gain slipped to their lowest since May 2010 in Chicago futures trading MXPU1 in the week ending Aug. 24, according the the U.S. Commodities Futures Trading Commission.
The low level means relatively few speculators are exposed to the risk of a stronger peso, opening space for them to bet on Mexico's currency if their risk appetite rises. [ID:nN1E77P1KX]
There remains a good chance that the peso will reverse its gains if other U.S. data releases this week fail to bolster the growth outlook, said Salomon, as did Delia Paredes, a currency analyst at Banorte-IXE in Mexico City.
"The data we are going to see will come in under a better light even though the data could keep showing weakness," she said. "The risk of a recession is still there at 40 percent."
She expects the peso to strengthen beyond 12 to the dollar in the coming months and finish the year at 11.50.
Mexico's benchmark 10 year bond in pesos, known as a "bono" MX10YT=RR, fell 0.14 to 105.39 percent of face value.
Brazil's real BRBY gained 0.44 percent to 1.5960 to the dollar while its 10-year, local-currency National Treasury Note BR10YT=RR surged 18.78 to 942.94, or 94.29 percent of face value.
The yield fell 42 basis points to 11.32 percent, its lowest level in a year.
"With continued concern about world growth despite the U.S. data we are in a sensitive spot in Latin America, a place where we're likely to see weak monetary policy and tighter fiscal policy," Salomon said. "That should cause bond yields to fall and currencies to appreciate."
Overnight interest rate futures DIJF2 have been plunging this month in Brazil as investors price-in expectation that Brazil will cut its 12.5 percent interest rate, the highest of any major economy, before the end of the year. [ID:nN1E77P1T4]
Failure to cut or control government spending as the Brazilian government tries to loosen monetary policy to promote growth could cause the lower yield, stronger currency trend to reverse, Salomon said.
Brazil's finance minister Guido Mantega said on Monday announced plans to increase the country's so-called "primary surplus" or excess of revenue over expenses before payments on government debt by 10 billion reais (US$6.3 billion). [ID:nE5E7H700P]
"This signifies more solidity, more investment and lower interest rates," Mantega said. He added that the measures were being made to preserve growth in the face of deteriorating economic conditions in the United States and Europe and that he expected world economic problems to cause volatility in the exchange rate and in stock prices.
Elsewhere in Latin America, Chile's peso CLP=CL firmed 0.2 percent to 464.70 to the dollar. Colombia's peso COP2=STFX firmed 0.38 percent to 1,787,50.
Peru's sol PEN=PE was little changed from Friday at 2.7290 to the dollar.