* Brazil's real dips 0.68 pct, Mexican peso loses 1.14 pct

(New throughout)

By Michael O'Boyle and Samantha Pearson

MEXICO CITY/SAO PAULO, (Reuters) - Mexico's peso and
Brazil's real slumped Wednesday as fear of a global economic
slowdown pushed investors into safe havens, while Chile's peso
held its ground and Colombia's currency hit a two-year high.

Chile's central bank is seen raising its benchmark interest
rate by 50 basis points to 2 percent Thursday as the
country's economy bounces back more quickly than expected from
a devastating earthquake in February.

"Inflation expectations have been rising, and that is
triggering rates to move higher on the expectation of more
hikes and all that is supporting the currency," said Jorge
Perez-Duarte, a managing director of emerging markets trading
at TD Securities in Toronto.

"The real attraction is the growth in the economy. Chile
will continue to outperform," he added.

Chile's currency bid flat at 512.20 per dollar,
shrugging off early losses.

The Chilean peso has outperformed the region's currencies
over recent weeks and is expected to firm to 510 per dollar
within a week and hold at that level by the end of the year,
according to a new, fortnightly central bank poll.

A Chilean government plan to regulate taxation of
derivatives to encourage currency hedging by smaller companies,
which should boost liquidity, provided further backing for bets
on the peso.

Colombia's peso firmed 0.34 percent to 1,802.45
per dollar, its strongest since August 2008. The Colombian
currency was boosted by the re-establishment of diplomatic ties
between Colombia and Venezuela, according to brokerage
Corredores Asociados.

The meeting between new Colombian President Juan Manuel
Santos and Venezuela's Hugo Chavez Tuesday promised a
revival of around $7 billion in bilateral trade.

Colombia is also expected to see a rush of around $10
billion in direct foreign investment in its oil and mining
industries this year, and the government estimates that exports
will reach a record $40 billion.


The Brazilian real shed 0.68 percent to 1.768 per
dollar while Mexico's peso shed 1.14 percent to 12.744
per U.S. dollar.

China, which buys the majority of Brazilian exports,
reported a deceleration in manufacturing last month, raising
concerns about demand for raw materials from the region.

Investors also fled to the safety of the U.S. dollar and
Treasuries after the Federal Reserve downgraded its outlook on
the economy of the United States, Mexico's top trading

Steep drops in U.S. stock markets that pushed major indexes
past key technical levels could bode for further losses in U.S.
stocks as well as the real and the Mexican peso, which closely
track global sentiment on riskier assets, analysts said.

"The technical positioning is very long these currencies,
so there is the potential for a squeeze and these currencies
could lose more ground," said Perez-Duarte.

Mexican benchmark peso bonds rallied, pushing yields down
to all-time lows. The yield on the 10-year bond bid
down 10 basis points to 6.40 percent.

"Mexican bonds have not been behaving like typical emerging
market assets, but in recent months they have been like safe
havens," said Luis Flores, an economist at brokerage IXE in
Mexico City.

Flores said Mexican bonds have surged to such low yields --
well below where many economists think they should be due to
the inflation outlook -- due to bets of further flows into the

Market players expect billions of dollars to flow into
Mexican bonds around October, when more than $100 billion of
peso debt will be included in Citigroup's World Government Bond
(Additional reporting by Nelson Bocanegra in Bogota and Maria
Jose Latorre in Santiago; Editing by Dan Grebler)