* Brazil retail sales rise for 5th consecutive month * Chilean investors speculate about sovereign rating upgrade * Mexican peso takes biggest dip in two weeks By Walter Brandimarte RIO DE JANEIRO/MEXICO CITY Dec 13 Latin American currencies edged lower on Thursday as trading volumes started to dwindle with the approach of end-year holidays, and the uncertain outcome of crucial U.S. budget negotiations kept many investors on the sidelines. Concerns about negotiations to avoid steep tax hikes and spending cuts in the Unites States dominated world markets, eclipsing the positive impact of new stimulus measures unveiled by the U.S. Federal Reserve on Wednesday. The currencies of Mexico, Brazil , Chile and the Colombian peso weakened 0.1 percent or more, while the Peruvian sol was steady. In Chile, some investors said expectations of a sovereign rating upgrade cushioned the negative currency impact stemming from lower prices of copper, the country's main export. "The strength of the domestic economy and recent visits from ratings agencies to the country are leading investors to bet that Chile will get a rating upgrade," said Carlos Martinez, head of the money desk at Vantrust Capital in Santiago. "That could bring more dollar inflows to the country, boosting the (Chilean) peso," he added. In Brazil, the real closed 0.43 percent weaker at 2.0742 per dollar. The currency has been trading close to 2.07 for four sessions, after a series of central bank foreign exchange interventions and comments by policymakers dragged the currency back from a 3-1/2 year low. Policymakers indicated the central bank wants the currency to stabilize somewhere between 2.0 and 2.1 per dollar. "The market is cautious. It looks like 2.07 is a comfortable level for the central bank," said Reginaldo Galhardo, a manager at the currency desk of Treviso brokerage in Sao Paulo. Gustavo Godoy, a manager at Daycoval bank, added that investors are "digesting information" provided by policymakers in the past few days. "There are reasons for the exchange rate to go up or down, so investors are just doing modest, intraday trades," he said. Trading volumes could also decline in Brazil's interest rate market as expectations of a stable Selic made it more difficult for investors to build aggressive trading positions. The interest-rate contract maturing in January 2014 , one of the most traded, edged lower a single basis point to 7.07 percent after data showed Brazil's retail sales grew for a fifth straight month in October. "The (retail sales) results should help moderate concerns about decelerating domestic demand and economic growth and further reduce expectations for potential additional interest rate cuts in the near term," Felipe Hernandez, a strategist with RBS, wrote in a research note. The Mexican peso closed down 0.49 percent at 12.8075 per dollar, sustaining its biggest fall in two weeks, after U.S. Republican House Speaker John Boehner accused President Barack Obama of "slow walking" the economy off the fiscal cliff. But analysts underscored the movement occurred a day after the Mexican peso reached its highest level since Oct. 5, suggesting profit-taking as opposed to broader weakening trend. "The good news is that even though there is uncertainty, even though there is no clear progress seen (on the fiscal cliff), the exchange rate is still...fairly attractive," said Jorge Gordillo, an analyst at CI Banco in Mexico City. He added that he expects the peso to stay in the range of 12.70 to 12.95 per dollar in the short term. Latin American FX prices at 2342 GMT: Currencies daily % year-to- change ate % Latest change Brazil real 2.0742 -0.43 -10.30 Mexico peso 12.8075 -0.49 9.07 Argentina peso* 6.5000 -0.31 -27.23 Chile peso 474.8000 -0.13 9.37 Colombia peso 1,796.5000 -0.10 7.90 Peru sol 2.5650 0.00 5.15 * Argentine peso's rate between brokerages
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