* Colombian peso hit by weakness in oil prices * Latam, Caribbean economies to remain in COVID grip -IMF * Argentina August economic activity down 11.6% year-on-year (Updates prices throughout; adds background, bullets) By Shreyashi Sanyal Oct 22 (Reuters) - Colombia's peso fell for the first time in five days on Thursday as the oil exporter's currency took a hit from recent weakness in crude prices, while Brazil's real firmed the most among Latin American currencies amid optimism over its economic recovery. The peso slipped from a one-month high to fall 0.3% against the dollar as oil prices struggled to stay afloat after higher U.S. gasoline inventories signaled a deteriorating demand outlook. Colombia recently approved a 314 trillion peso ($81.7 billion) budget for next year, which is the country's biggest ever and 8.3% higher than this year's, but analysts call it a relatively austere sum for 2021. Economists at Capital Economics note, "the rebound in demand will be held back by limited fiscal support from the government and low oil prices." The International Monetary Fund said in a report that next year's rebound from a sharp, 8.1% contraction in Latin American and Caribbean economies in 2020 will be partial and uneven, with output not catching up for years and tourism-dependent countries seen struggling the most. Brazil's real firmed 0.4% as investors remained hopeful of the pace at which the country's economy is recovering. Latest figures have shown a rebound in retail sales, manufacturing, industrial production and international trade. Latin America's biggest economy also benefited from a pickup in demand in China, its biggest export hub for agricultural products. However, the country's public finances remain a major sticking point for business confidence as investors raise doubts about the government's ability to fund a new fiscal package. "The scenario for the public accounts for the next few years is increasingly challenging, as the government is showing a desire to continue to increase spending next year," said Solange Srour, Brazil chief economist at Credit Suisse. Brazil's government early next month will revise its 2020 gross domestic product forecast, currently a contraction of 4.7%, special secretary at the economy ministry Waldery Rodrigues said. Mexican annual inflation quickened faster than expected in the first two weeks of October, pushing the rate above the central bank's tolerance threshold, figures from the national statistics office (INEGI) showed. The Mexican peso rose 0.4%. Chile's peso rose, while Argentina's peso slipped. Argentina's August economic activity dropped 11.6%, the country's statistics agency said, shallower than the decline a month earlier in July but slightly worse than analyst forecasts. The MSCI's index for Latin American equities gained 1.1%, supported by a rise in Sao Paulo stocks. Shares in Brazilian motor maker WEG SA were up 3%after the company reported a 54% rise in third-quarter profit on Wednesday, as it saw demand for equipment grow. Key Latin American stock indexes and currencies at 2000 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1135.49 -0.21 MSCI LatAm 1976.92 1.07 Brazil Bovespa 101937.12 1.38 Mexico IPC 38563.40 -0.27 Chile IPSA 3811.29 0.76 Argentina MerVal 51482.15 2.782 Colombia COLCAP 1177.89 0 Currencies Latest Daily % change Brazil real 5.5930 -0.01 Mexico peso 20.9911 0.51 Chile peso 778.9 0.44 Colombia peso 3782 -0.46 Peru sol 3.6017 -0.14 Argentina peso (interbank) 78.0600 -0.40 Argentina peso (parallel) 186 -1.61 (Reporting by Shreyashi Sanyal in Bengaluru; editing by Jonathan Oatis)
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