(Updates to close) By Shreyashi Sanyal and Susan Mathew July 29 (Reuters) - Mexico's peso edged lower on Wednesday after a dour economic forecast, as did Brazil's real, while most other Latin American currencies firmed after the U.S. Federal Reserve pledged to keep interest rates low, denting the dollar. The Fed repeated its willingness to use the "full range of tools" to support the U.S. economy and keep interest rates near zero for as long as it takes to recover from the coronavirus outbreak, saying the economic path will depend significantly on the course of the virus. While this came as no surprise, it sent the dollar to two-year lows. "The most notable thing is the statement that the path of the economy will depend on COVID-19," said Nela Richardson, investment strategist at Edward Jones in St. Louis. "That sentence shows the primacy of COVID-19 in their outlook and the uncertainty of their outlook because of it." Fed Chair Jerome Powell said the health crisis had begun to weigh on economic recovery. Chile's peso scaled a near seven-month high, while crude exporter Colombia's currency rose 0.5% aided also by a rise in oil prices. Mexico's peso struggled for direction, last down 0.2%, after Gerardo Esquivel, one of the Bank of Mexico's five board members, said Mexico's gross domestic product could contract between 8.5% and 10.5% in 2020 due to impacts of the virus, expecting a year-on-year fall of 20% in the second quarter. The second quarter data is due on Thursday. Meanwhile, the bank extended the duration of a Fed swap line of up to $60 billion until at least March 31, 2021, from its current expiration date of September 30. Brazil's real erased gains to trade steady to lower. Figures signaled the central bank's emergency measures to boost the availability of credit were paying off with bank lending spreads in Brazil shrinking to their lowest in over six years and default ratios hitting a 2020 low in June. On the reform front, Brazil's Economy Minister Paulo Guedes said he is very optimistic on pushing through wide-ranging tax reform, with the next stage centering on income and payroll taxes. Stocks in the region were mixed with the Brazil Bovespa index rising 1.3% to hit its highest in nearly five months, while Mexican stocks fell 0.1%. Santander Brasil rose 3.7% as the lender said it may not need extra provisioning this year, after setting aside 3.2 billion reais ($621 million) for potential coronavirus-related loan losses. Latin American stock indexes and currencies 2002 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1086.51 0.41 MSCI LatAm 2125.01 0.96 Brazil Bovespa 105444.20 1.28 Mexico IPC 37727.88 -0.11 Chile IPSA 3983.37 -1.78 Argentina MerVal 48897.69 -0.075 Colombia COLCAP 1174.91 0.33 Currencies Latest Daily % change Brazil real 5.1729 -0.03 Mexico peso 21.9500 -0.11 Chile peso 757.4 0.95 Colombia peso 3704.6 0.49 Peru sol 3.4977 0.29 Argentina peso 72.1900 -0.07 (interbank) (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Bernadette Baum and Grant McCool)
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