* Mexico, Colombian currencies both add 1% * EM bonds under pressure * Brazil's real flat as virus fears weigh (Updates prices throughout) By Ambar Warrick and Shreyashi Sanyal Jan 6 (Reuters) - The Mexican and Colombian pesos gained on Wednesday tracking higher oil prices, while other Latin American currencies rose as the prospect of a Democrat-controlled U.S. Senate drove down the dollar and pushed flows into risk assets outside America. Democrats won one U.S. Senate race in Georgia and led in another on Wednesday, moving closer to a majority that will allow President-elect Joe Biden to carry out his agenda. That includes increased stimulus measures and higher corporate taxes. The prospect of higher fiscal spending weighed on the dollar, while the possibility of higher corporate taxes hurt the outlook for several U.S. stock sectors, particularly technology. In Latin America, Mexico's peso rose 1% against the dollar while fellow oil exporter Colombia's peso also surged, as oil prices hit a 11-month high after Saudi Arabia announced a big voluntary production cut. "If you think of the key drivers of EM risk assets - on the monetary side - it's negative rates. It effectively means that capital is being moved out of the U.S. into the rest of the world," said Polina Kurdyavko, head of emerging markets at BlueBay Asset Management. Brazil's real edged lower, despite data showing an expansion in the country's services sector through December. Latin America's largest economy is among the worst hit in the world by the coronavirus, and the country is racing to ramp up vaccinations amid a renewed surge in infections. The MSCI's index of Latin American stocks rose 1.9%. But in the fixed income space, broader emerging market investment-grade bonds came under pressure from expectations of increased U.S. debt issuance. Abu Dhabi and Qatar sovereign 2050 Eurobonds were 1.8 cents lower at their weakest in two months, while Saudi Arabia's 2060 issue sank 1.9 cents to its lowest since mid July, Refinitiv data showed. "There's a high probability and expectation that in the U.S. there'll be a blue wave and big infrastructure spending and that of course means the U.S. government will issue more debt," said Alejandro Arevalo, emerging market debt manager at Jupiter Asset Management. "That has put not just GCC (Gulf Cooperation Council) but investment grade names under pressure across EM." Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 1318.53 -0.11 MSCI LatAm 2495.08 1.95 Brazil Bovespa 120533.18 0.97 Mexico IPC 45876.99 2.16 Chile IPSA 4418.05 1.16 Argentina MerVal 52162.06 1.1 Colombia COLCAP 1440.24 0.59 Currencies Latest Daily % change Brazil real 5.2841 -0.39 Mexico peso 19.6460 1.18 Chile peso 695.3 -0.01 Colombia peso 3413.74 0.81 Peru sol 3.6237 0.11 Argentina peso (interbank) 84.9000 -0.11 Argentina peso (parallel) 156 2.56 (Reporting by Ambar Warrick and Shreyashi Sanyal in Bengaluru; Additional reporting by Sruthi Shankar and Tom Arnold; Editing by Jan Harvey)
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