By Aaron Saldanha May 16 (Reuters) - Latin American currencies softened on Thursday against a dollar that was strengthened by trade war fears, while a Latin American stocks benchmark fell as losses in index heavyweight Brazil overcame gains on other countries' exchanges. Traders this week have generally scaled back exposure to Latin American countries at risk of being affected by a prolonged U.S.-China trade war, lifting the dollar, which was also supported on the day by better than expected U.S. homebuilding data. MSCI's index of Latin American currencies fell 0.2%, while index of Latin American stocks slid 0.6%. Brazil's real pierced through the 4 reais per dollar mark for the second day in a row. It fell as much as 0.6% to a seven-and-a-half-month low, while yields on local 10-year bonds inched up three basis points to 8.93%. Investor sentiment towards Brazil cooled, with the central bank's president acknowledging there is a "relevant probability" that Latin America's top economy contracted slightly in the first quarter. Roberto Campos Neto also said controlling inflation hinged on the approval and implementation fiscal reforms, with markets delaying investment until uncertainty reduces. Investors have been on the look-out for the passage of a proposal to reform Brazil's giant pension system, with the currency and equities recently swinging broadly in lock-step with news on the proposal's progress. Brazilian stocks dropped 0.7%, weighed on largely by losses among financials and consumer discretionary stocks. The Bovespa was on course to clock this year's lowest closing level. Mining firm Vale SA was among the Bovespa's few gainers, rising 0.9%. Dalian-traded iron ore futures hit a record peak earlier in the global day. The Mexican peso softened 0.2%, while stocks edged up. Chile's peso and its stocks marked time, as did Colombia's peso. Colombian stocks rose 0.8%, with oil firm Ecopetrol 1.3% higher, against a backdrop of rising Brent crude futures. Argentina's stocks benchmark tacked on 1%, largely on gains among financials. Latin American stock indexes and currencies at 1432 GMT Stock indexes daily % Latest change MSCI Emerging Markets 1012.63 -0.33 MSCI LatAm 2572.76 -0.57 Brazil Bovespa 91010.20 -0.67 Mexico IPC 43378.66 0.09 Chile IPSA 5006.91 0.03 Argentina MerVal 33555.83 1.02 Colombia IGBC 12349.37 0.82 Currencies daily % change Latest Brazil real 4.0170 -0.53 Mexico peso 19.0897 -0.22 Chile peso 692.5 -0.25 Colombia peso 3283.68 -0.03 Peru sol 3.316 0.03 Argentina peso (interbank) 45.0300 -0.07 (Reporting by Aaron Saldanha in Bengaluru Editing by Alistair Bell)
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