Brazil's Guedes signals one-off waiver to spending cap Brazil's real drops 2%, stocks lose 3% Petrobras slips as Q 3 production falls y-o - y Mexico's Alfa rises on raising 2021 core earnings forecast Updates prices By Ambar Warrick and Susan Mathew Oct 21 Reuters - Brazil's real slumped almost 2% and stocks slumped to 11 month lows on Thursday as concerns over fiscal spending were compounded by weak sentiment, with most The real dropped to a fresh six-month lows and the 10 year bond hit 3 year lows after economy minister Paulo Guedes opened the door to a one-off breach of a constitutional spending cap to pay for a bigger welfare program proposed by Brazilian President Jair Bolsonaro. Guedes' comments appeared to contradict earlier assurances from Bolsonaro that Brazil could increase payouts without stretching its strict fiscal rules. Increased fiscal risk has seen the Bovespa stocks index of Sao Paulo mark one-day losses of over 3% four times since last month alone. The index is down almost 10% this year compared with the broader emerging markets index trading flat year-to-date. The currency has lost around 8% in 2021 versus a 0.7% rise for broader EM peers. JPMorgan analysts now expect a 125 basis point hike next week and again in December. The monetary authority is already one of the most aggressively hawkish banks in the world as it tries to contain inflation, stoking fears about the economy being choked. Brazil, and most other emerging market economies have been grappling with high inflation this year, driven by rising fuel costs and disruptions in global trade caused by the COVID-19 pandemic. The International Monetary Fund said inflation expectations remain anchored in Argentina, but not in Mexico. Mexico's peso fell 0.4%, off a more than three-week high as data showed retail sales stayed flat in August. A pullback in oil prices also weighed on Colombia's peso, while crude exporter Mexico's currency fell 0.3%. Peru's sol fell slightly, with political uncertainty creeping into markets ahead of a key vote in Congress on a new Cabinet next week. Still, the sol had rallied in recent sessions after President Pedro Castillo's recent Cabinet overhaul was seen as more moderate. Among individual stocks, Mexican oil major Petrobras slumped 3.5% after it reported a decline in production in the third quarter from a year ago, while Brazilian conglomerate Alfa rose after raising 2021 core earnings forecast. Construction firm Grupo Carso fell 2.2% after it agreed to repair Mexico City's collapsed metro line at no cost to the government. Brazilian fuel distributors Vibra and Raizen slumped following a protest by tanker drivers in Rio de Janeiro, which led to a stoppage at a fuel supply base they operate.