(Adds central bank rate cut, final prices) By Bruno Federowski SAO PAULO, Sept 6 (Reuters) - Brazil's stocks and currency rallied on Wednesday before the central bank cut interest rates to a four-year low after the market closed, seeking to spur an incipient economic recovery. The central bank slashed its benchmark Selic rate by 100 basis points to 8.25 percent, but signaled the pace of monetary easing would probably slow next month. Earlier, the market rallied as Brazil's Congress cleared two key fiscal bills, adding to investor optimism over President Michel Temer's ability to pass market-friendly reforms. Mexico's peso, meanwhile, rose by 0.6 percent against the dollar amid general weakness in the greenback, while the S&P/BMV IPC stock index strengthened 0.43 percent. "Today's advance can be put down to adjustments in some firms whose values had lost ground and were looking attractive," said Gerardo Copca, a strategist at Metanalisis consultancy. Late on Tuesday, Brazilian lawmakers approved softened budget targets for 2017 and 2018, as well as a bill setting a market-based benchmark rate for state development bank BNDES that will reduce subsidies in years to come. The measures are central to Temer's efforts to limit growth of public debt without implementing further tax hikes. Investors hope that will boost long-term growth in Brazil as the economy emerges from the deepest recession in a century. Hopes of increased lawmaker support for his platform grew this week after the country's top prosecutor threatened to partially revoke a plea deal that had supported corruption charges against the center-right president. The Brazilian real strengthened 0.55 percent on Wednesday as the cost of insuring against a Brazilian sovereign default hit a new two-year low. The country's benchmark stock index neared a record high. Supporting demand for Brazilian shares was news the Finance Ministry was analyzing the implications of relinquishing veto rights on certain strategic decisions in a few companies, which could pare back the state's role in the economy. Shares of state-controlled power utility Centrais Elétricas Brasileiras SA, which the government plans to privatize, rose 2.3 percent. Planemaker Embraer SA, which could be targeted by the measure, rose 3.2 percent, also lifted by a $1.1 billion firm order from SkyWest. The Chilean peso closed up 0.55 percent to the highest since May 2015, tracking a rally in prices of copper, a key export. The currency has strengthened sharply in recent weeks, but some traders believe the move may be overstretched. Key Latin American stock indexes and currencies at 2230 GMT: Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 1083.18 -0.16 25.62 MSCI LatAm 2939.30 1.09 25.58 Brazil Bovespa 73412.41 1.75 21.89 Mexico S&P/BVM IPC 50515.60 0.43 10.68 Chile IPSA 5080.59 -1.02 22.38 Chile IGPA 25416.50 -0.94 22.58 Argentina MerVal 24164.85 0.58 42.84 Colombia IGBC 11219.89 -0.13 11.39 Venezuela IBC 266926.16 -1.06 741.90 Currencies daily % YTD % change change Latest Brazil real 3.1021 0.55 4.74 Mexico peso 17.7860 0.61 16.63 Chile peso 618.3 0.55 8.49 Colombia peso 2913.7 0.69 3.01 Peru sol 3.235 0.03 5.53 Argentina peso (interbank) 17.2050 0.17 -7.73 Argentina peso (parallel) 17.90 0.22 -6.03 (Additional reporting by Sheky Espejo in Mexico City; Editing by Chizu Nomiyama and Jonathan Oatis)
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