(Updates prices)
By Sruthi Shankar
July 18 (Reuters) - Latin American currencies rose on Thursday as the dollar fell, with the Brazilian real also hitting four-month highs on optimism over the country's pension reform.
The dollar fell after New York Federal Reserve chief John Williams said policymakers need to add stimulus early to deal with too-low inflation when rates are near zero.
Markets read that as a strong argument in favor of action by the Fed to cut rates this month. Prospects of major central banks cutting interest rates have encouraged capital inflows into risky, emerging market assets this year.
Brazil's real firmed as much as 3.7217 per dollar, its strongest level since Feb. 28, while the Bovespa stock index added 0.7%, extending a rally in the recent months ahead of anticipated congressional passage of the pension reform.
"The market has fully priced in pension reform. What I don't think is priced in for the Brazilian markets is the rest of the reform agenda - be it with regards to tax reform, privatization, liberalizing financial markets, banking sectors," said Abbas Ameli-Renani, emerging markets portfolio manager at Amundi.
"If we start seeing meaningful signs of the administration showing potential, that's where we could get the next leg of strong performance in Brazilian assets."
Investors looked for further policy directions from President Jair Bolsonaro's government, which promised an economic stimulus package this week to revive growth.
The announcement came days after the lower house of Congress approved the first round of voting for the pension reform bill, seen as a critical step to restoring health to public finances and boosting investor confidence.
The broader optimism helped the Mexican peso up 0.6%, while the Colombian and the Argentine pesos gained about 0.3%.
The Mexican peso has come under pressure this week as a keenly awaited business plan to revive the heavily indebted state-owned oil firm Pemex failed to excite investors, raising concerns about a Moody's downgrade following a Fitch downgrade on its bonds to junk status.
Credit rating agency Moody's said on Thursday it would downgrade Pemex's debt in 2019 if its performance was worse than expected.
Stocks in Mexico were dragged down by a more than 9% loss for conglomerate Alfa SAB de CV after its poor quarterly results.
Stocks in Colombia and Argentina fell over 1.5%, weighed down by energy companies as oil prices slumped.
Latin American stock indexes and currencies at 1944 GMT
Stock indexes daily %
Latest change
MSCI Emerging Markets 1053.69 -0.11MSCI LatAm 2944.50 0.65 Brazil Bovespa 104622.39 0.74 Mexico IPC 41605.33 -2.22 Chile IPSA 5039.72 0.16 Argentina MerVal 40756.87 -1.68 Colombia IGBC 12832.00 -1.53
Currencies daily %
change
Latest
Brazil real 3.7293 0.82
Mexico peso 18.9520 0.58
Chile peso 684 -0.29
Colombia peso 3172.29 0.26
Peru sol 3.286 0.06
Argentina peso 42.4200 0.27
(interbank)