* Chile's peso flat ahead of expected rate hike
* Colombia's peso hits two-year high
* Brazil's real dips 0.68 pct, Mexican peso loses 1.14 pct (New throughout)
By Michael O'Boyle and Samantha Pearson
MEXICO CITY/SAO PAULO, Aug 11 (Reuters) - Mexico's peso and Brazil's real slumped on Wednesday as fear of a global economic slowdown pushed investors into safe havens, while Chile's peso held its ground and Colombia's currency hit a two-year high.
Chile's central bank is seen raising its benchmark interest rate by 50 basis points to 2 percent on Thursday as the country's economy bounces back more quickly than expected from a devastating earthquake in February. For details, see: [ID:nN0965183]
"Inflation expectations have been rising, and that is triggering rates to move higher on the expectation of more hikes and all that is supporting the currency," said Jorge Perez-Duarte, a managing director of emerging markets trading at TD Securities in Toronto.
"The real attraction is the growth in the economy. Chile will continue to outperform," he added.
Chile's currency
The Chilean peso has outperformed the region's currencies over recent weeks and is expected to firm to 510 per dollar within a week and hold at that level by the end of the year, according to a new, fortnightly central bank poll. [ID:nN11245410]
A Chilean government plan to regulate taxation of derivatives to encourage currency hedging by smaller companies, which should boost liquidity, provided further backing for bets on the peso. [ID:nN11223689]
Colombia's peso
The meeting between new Colombian President Juan Manuel Santos and Venezuela's Hugo Chavez on Tuesday promised a revival of around $7 billion in bilateral trade. [ID:nN10132853] and [ID:nN11231503]
Colombia is also expected to see a rush of around $10 billion in direct foreign investment in its oil and mining industries this year, and the government estimates that exports will reach a record $40 billion.
MEXICO BONDS RALLY
The Brazilian real
China, which buys the majority of Brazilian exports, reported a deceleration in manufacturing last month, raising concerns about demand for raw materials from the region. [ID:nTOE67A01A]
Investors also fled to the safety of the U.S. dollar and Treasuries after the Federal Reserve downgraded its outlook on the economy of the United States, Mexico's top trading partner.
Steep drops in U.S. stock markets that pushed major indexes past key technical levels could bode for further losses in U.S. stocks as well as the real and the Mexican peso, which closely track global sentiment on riskier assets, analysts said.
"The technical positioning is very long these currencies, so there is the potential for a squeeze and these currencies could lose more ground," said Perez-Duarte.
Mexican benchmark peso bonds rallied, pushing yields down
to all-time lows. The yield on the 10-year bond
"Mexican bonds have not been behaving like typical emerging market assets, but in recent months they have been like safe havens," said Luis Flores, an economist at brokerage IXE in Mexico City.
Flores said Mexican bonds have surged to such low yields -- well below where many economists think they should be due to the inflation outlook -- due to bets of further flows into the country.
Market players expect billions of dollars to flow into Mexican bonds around October, when more than $100 billion of peso debt will be included in Citigroup's World Government Bond index. (Additional reporting by Nelson Bocanegra in Bogota and Maria Jose Latorre in Santiago; Editing by Dan Grebler)