* Brazil's public sector debt hits 86.5% of GDP * Colombian peso extends four-day winning streak * Chile's stock index slides as manufacturing activity falls * LatAm FX index set for biggest monthly decline since March By Sagarika Jaisinghani Aug 31 (Reuters) - The Brazilian real slipped on Monday as data showed the country's finances deteriorated further due to the COVID-19 pandemic, while the Colombian peso extended gains to a fourth straight session ahead of an expected cut in interest rates. The real was down 1.7% against a weaker dollar as the health crisis pushed Brazil's public sector debt to a record 86.5% of gross domestic product in July, while its primary deficit, excluding interest payments, was 81.1 billion reais ($15 billion). The currency has plunged about 26% to record lows this year as the pandemic hammered growth in Latin America's biggest economy. On Friday, Brazil's Treasury raised the public debt ceiling for 2020 to account for the surge in emergency spending to combat the health crisis. An index of Latin American currencies fell 0.4% on the day and was on course for its biggest monthly percentage decline since March, when the onset of the pandemic triggered a flight from risky assets. The index has also severely underperformed its global counterpart, which is on course for its fifth straight monthly gain amid aggressive global stimulus and hopes of a post-pandemic economic rebound. The Colombian peso gained about 0.2% versus the greenback, rising for the fourth session in a row ahead of a central bank meeting where it is widely expected to cut interest rates by another 25 basis points. "Weaker-than-expected growth (and) low inflation still provide space for the central bank to lower the policy rate one more time," said Juan Maldonado, director of Latin America economics at Credit Suisse. "However, we think this may be the end of the cycle, at least for the time being. As the economy continues to reopen, activity indicators should rebound and low monthly inflation momentum may come to an end." In Argentina, the peso eased as investors awaited the results of the government's debt deal later in the day, with expectations running high that the tender received huge creditor support. A strong deal is key for the major grains producer to drag itself out of default and revive an economy that is in its third year of recession. The Chilean peso firmed about 0.5%, but the stock index tumbled 1.8% to its lowest in nearly three months as data showed manufacturing activity fell 7.2% in July, driven by a decline in food production. A 1.8% slide in Mexico's stock index also weighed on a basket of Latin American equities, putting it on course for its first monthly decline in five. Mexico's peso shed 0.7%. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 1102.75 -1.68 MSCI LatAm 1961.00 -1.83 Brazil Bovespa 100602.60 -1.51 Mexico IPC 37126.71 -1.77 Chile SPIPSA 3804.64 -1.78 Argentina MerVal 46619.19 0.48 Colombia Colcap 1215.11 -0.91 Currencies Latest Daily % change Brazil real 5.4850 -1.32 Mexico peso 21.9140 -0.74 Chile peso 775.7 0.35 Colombia peso 3734.45 0.26 Peru sol 3.5447 -0.34 Argentina peso (interbank) 74.1700 -0.23 (Reporting by Sagarika Jaisinghani in Bengaluru; Editing by David Gregorio)
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