* Mexico's Q1 economic activity contracts less than expected * Brazil posts record current account surplus in April * Investors turn "underweight" on Brazil's real - JPMorgan * Chile's LATAM Airlines files for bankruptcy (Adds comment, updates prices) By Susan Mathew and Ambar Warrick May 26 (Reuters) - Mexico's peso hit a 10-week high on Tuesday after first-quarter economic activity contracted less than expected, while broader regional assets were lifted by hopes of economic recovery as more countries eased virus-driven lockdowns. The peso jumped 1.5%, extending gains to a seventh straight session after the GDP data, but as a coronavirus lockdown was applied only in late March, the second quarter is expected to bear the brunt of the shutdown in business activity. "The peso should be well placed to benefit from any improvement in global growth momentum and EM risk appetite, helped by its appealing short term valuations improving balance of payments dynamics," said global FX strategists at JPMorgan. The planned lifting of coronavirus-related curbs in major European economies brewed optimism over an eventual return to economic normalcy from the coronavirus. Brazil's real surged 2% to a four-week high. Central bank support has helped the currency come off record lows, but it still remains about 25% down on the year amid a federal investigation into President Jair Bolsonaro as well as a spree of ministerial resignations. JPMorgan analysts said investors had turned "underweight" on the real for the first time since September 2018, but they still see the currency outperforming by the end of the year as financial markets focus on "the significant cheapness of the currency in the medium run." Brazilian central bank data showed the country posted a record current account surplus in April, although foreign direct investment slumped to its lowest in four years. "Despite the constructive market environment seen in recent weeks, the economic outlook for Latin American economies looks grim," wrote Gustavo Rangel, Chief Economist, LATAM, at ING. "A particular source of concern is likely to be the fiscal toll represented by the deep recession and the greater spending needed to fight the pandemic... Brazil should remain an especially important source of concern here." While the economic threat of the coronavirus has battered emerging markets, those in Latin America have lagged behind their broader peers this year due to doubts over regional economies packing the fiscal strength to handle the crisis. Chile's LATAM Airlines Group SA filed for U.S. bankruptcy protection on Tuesday, becoming the world's largest carrier so far to seek an emergency reorganization amid the coronavirus outbreak. Still, gains on Wall Street helped improve investor confidence in equities, with Brazil's Bovespa touching an 11-week high, while Mexico's main index rose 0.6%. Key Latin American stock indexes and currencies at 1915 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 927.98 1.82 MSCI LatAm 1776.09 2.3 Brazil Bovespa 85918.66 0.3 Mexico IPC 36060.52 0.64 Chile IPSA 3737.01 -0.38 Argentina MerVal 41230.82 0.654 Colombia COLCAP 1073.11 1.46 Currencies Latest Daily % change Brazil real 5.3433 2.10 Mexico peso 22.2074 1.47 Chile peso 805.5 -0.12 Colombia peso 3729.12 1.27 Peru sol 3.4328 -0.20 Argentina peso 68.2600 -0.12 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Nick Zieminski)
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