* Brazil dollar debt-buyback speculation hits real
* Miner BHP Billiton outlook feeds China growth concerns
* Mexico quake briefly jolts peso trading
* Brazil real slips 0.4 pct, Mexico peso off 0.3 pct
By Rachel Uranga and Guillermo Parra-Bernal
MEXICO CITY/SAO PAULO, March 20 (Reuters) - Latin American currencies fell on Tuesday on concerns China’s demand for the region’s commodities could flag and after reports of a possible debt payment by Brazil that could curb the real.
Worries surfaced after the world’s biggest miner BHP Billiton said it was seeing flattening Chinese demand for iron ore. China is Brazil’s top foreign market and a major regional trading partner.
“China is coming back as a bit of a concern,” said Win Thin, an emerging market strategist at Brown Brothers Harriman. “We know that China is slowing, and it’s time for a little bit of a correction.”
Brazil’s real shed 0.4 percent to bid at 1.8174 per dollar.
The central bank also called an auction to buy U.S. dollars on the spot foreign-exchange market, in a bid to limit the local currency’s strength.
Earlier this month, China cut its 2012 growth target to an eight-year low of 7.5 percent, sparking concern that a major engine of economic growth could slow. That caused riskier assets to weaken, especially in commodity-dependent Latin America.
The move last month came as Brazil ratcheted up its efforts to beat back the real’s surge with a series of measures, including purchasing dollars in the spot market, which has resulted in a 6 percent decline in the currency.
BRAZIL‘S DOLLAR DIPLOMACY
Local newspapers reported on Tuesday that Brazilian Treasury Secretary Arno Agustin is now considering the early repayment of up to $15 billion of its external debt issues as a tool to weaken the real.
The government’s demand for dollars to pay the debt is big enough to “dislocate” the market, said Nick Chamie, head of emerging markets research at RBC Securities in Toronto.
“Officials will continue to build a menu of FX measures to convince investors that they can credibly defend their USD/BRL floor,” Chamie said.
Foreign investors seeking returns higher than those found in developed countries have poured money into Brazil since late last year. Brazil’s president blamed a “tsunami” of foreign capital for jacking up the real’s value and hurting local manufacturers.
Analysts now increasingly see Brazil’s government defending a level of 1.80 per dollar, a stance that has spooked some investors and prompted analysts to look toward Mexico where the government has been much more hands off in the currency market.
“We do not expect the latest possible measures mentioned by officials to materialize until (the exchange rate) returns towards the 1.76-1.72 range,” Chamie said.
Brazil’s aggressive measures have caused some analysts to bet on the Mexican peso over the real due to intervention risks and a slowdown in Latin America’s top economy.
In Mexico, the peso declined 0.3 percent to 12.6650 per dollar after markets returned from a holiday.
The peso briefly spiked to the upper end of its trading range for the day in the minutes following a strong earthquake in Mexico that shook buildings, forced evacuations and resulted in an early close of the local stock market.
The currency has been marking six-month highs since February, but it has ricocheted through a more narrow range since then and has been unable to break key levels.
Chile’s peso slipped 0.21 percent to bid at 484.20 per dollar.