(Updates prices) By Susan Mathew Oct 1 (Reuters) - Mexico's peso outshone Latin American peers on Thursday, with Brazil's real weighed by concerns about government spending and Chile's peso falling after the country's 2021 economic growth forecast was cut. The Mexican peso rose 1.3%, with data showing the country's manufacturing PMI hitting a six-month high in September bolstering gains. The index, however, was still in contraction territory. The currency rose for the third session in 10, a period over which it lost close to 5%. Brazil's real slipped 0.6% as worries remained that the government would overshoot its spending limit. Amid data showing public debt widened to a record, investors have been concerned about the financing of a new fiscal aid package by President Jair Bolsonaro's government. Brazilian Economy Minister Paulo Guedes on Wednesday appeared to row back on a government proposal that the program be funded by tapping money earmarked for future debt payments, saying his team had never intended to pay for the program that way. "It can be expected that the debt ceiling will remain a permanent issue," said Alexandra Bechtel, FX and EM analyst at Commerzbank. "The (pandemic) support measures have ensured Bolsonaro receives maximum support in the polls and he is likely to expect that the re-introduction ... will ensure that he is re-elected in late 2022. That makes the real susceptible and limits its appreciation potential even in times of risk-on." While hopes of more stimulus in the United States dented the dollar, sentiment remained fragile as data showed U.S. weekly jobless claims remained at recession levels, while personal income dropped in August. After more than a 1% surge last session, Colombia's peso fell 0.5% as crude prices slumped on demand concerns. Chile's peso gave up gains of as much as 0.7% after the growth forecast for the coming year was cut to 5% from a previous forecast of 5.5%. But the economy is expected to fare better in 2020 than initially expected. In Ecuador, President Lenin Moreno said the International Monetary Fund's executive board approved a $6.5 billion loan for the Andean nation that would provide financial support for sectors affected by the pandemic. Among stocks, Brazil's stocks erased early losses to rise 0.8% and Argentina's Merval index posted its best day in two weeks, while most others fell. Mexican shares posted their sharpest one-day drop in a month with losses more-or-less broad-based. Key Latin American stock indexes and currencies at 1927 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1085.46 0.32 MSCI LatAm 1824.87 -0.18 Brazil Bovespa 95346.44 0.79 Mexico IPC 36600.04 -2.29 Chile IPSA 3634.65 -0.07 Argentina MerVal 42560.31 3.149 Colombia COLCAP 1165.84 -0.52 Currencies Latest Daily % change Brazil real 5.6537 -0.64 Mexico peso 21.8350 1.21 Chile peso 786.9 -0.48 Colombia peso 3843.25 -0.47 Peru sol 3.6057 -0.11 Argentina peso 76.2400 -0.08 (interbank) (Reporting by Susan Mathew in Bengaluru;)
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