Brazil's real down 2% as central bank strikes cautious note; Stocks reverse course

* Brazil's cenbank hikes by 100 bps overnight

* Czech crown edges higher on larger than expected rate hike

* Polish zloty pares gains after smaller rate hike

* Dollar surges as euro slides, BoE decision dents pound

* S.African rand sinks more than 3% (Updates prices throughout)

By Susan Mathew

May 5 (Reuters) - Brazil's real slipped 2.5% on Thursday, hurt by a surging dollar and signals that the central bank's tightening cycle may be ending soon, while the Czech crown remained afloat after a larger-than-expected interest rate hike.

Emerging market currencies more broadly were slammed by a strong dollar. With the Bank of England flagging recession risks, the pound GBP= sank 2%, sending investors to the U.S. currency, allowing it to decidedly shrug off weakness spurred by a less hawkish-than-expected U.S. Federal Reserve.

South Africa's rand ZAR= plunged 3.6%, on course for its worst session in more than one year, while currencies of Mexico MXN= and Chile CLP= fell 1.0% and 0.9%, respectively.

Tracking a slide on Wall Street, an index of emerging market shares .MSCIEF also slipped 0.7% after rising as much as 1.2% in the session.

Brazilian equities slumped 2.84%, while heavyweight Chinese blue-chips .CSI300 and Hong Kong stocks .HSI also ended the day in the red. Mexican shares .MXX dropped 1.7% to hover near six week lows.

The Czech central bank raised the key rate by 75 basis points to 5.75%, compared to a 50 bps move expected by markets, and signaled more tightening. Aided also by a weakening euro, the Czech crown EURCZK= rose 0.2% to 24.555 per euro.

The Polish zloty EURPLN= , meanwhile, pared some session gains after the key rate was hiked by 75 bps to 5.25%, less than expected.

Brazil's real BRBY BRL= dropped to 5.0253 per dollar, following two days of gains, after the central bank overnight delivered a 100 basis points interest rate hike as expected, but flagged a smaller increase next month and a more significant risk of economic slowdown.

"Higher U.S. interest rates and expectations that (Brazil's central bank) is entering the latter part of its hiking cycle as growth conditions respond to higher domestic interest rates have reduced the real's carry appeal," said currency analysts at Monex.

"We expect the USDBRL rate to climb back above 5 in the near-term as election risks start to build."

Strategists at Citi, however, argued to the opposite effect: "We don't expect (the central bank) decision to negatively affect the real given that carry differentials are high enough."

The heavily controlled Russian rouble RUB= briefly reached its highest level against the dollar since March 2020, while investors watched developments around possible new sanctions against Moscow.

Among individual stocks, Brazilian poultry and pork processor BRF SA BRFS3.SA sank 5.8% after it reported a first-quarter loss, compared with a 22 million real profit a year ago.

Key Latin American stock indexes and currencies at 2006 GMT:

Stock indexes

Latest Daily %

change MSCI Emerging Markets .MSCIEF


-0.69 MSCI LatAm .MILA00000PUS


-2.47 Brazil Bovespa



-2.72 Mexico IPC



-1.59 Chile IPSA



-0.7 Argentina MerVal


86510.77 -3.233 Colombia COLCAP





Latest Daily %

change Brazil real



0.03 Mexico peso



-1.08 Chile peso



-1.00 Colombia peso COP=


-0.46 Peru sol



-0.63 Argentina peso (interbank)


-0.11 ARS=RASL

Argentina peso (parallel) ARSB=



Reporting by Susan Mathew & Shreyashi Sanyal in Bengaluru; Editing by Tomasz Janowski and Richard Chang

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