* Bovespa down 1.16 pct, Mexico's IPC off 0.47 pct
* Moody's warns Spain on possible debt downgrade
* Grupo Mexico falls as UBS cuts stock to sell (Updates to afternoon)
By Luciana Lopez and Michael O'Boyle
SAO PAULO/MEXICO CITY, Dec 15 (Reuters) - Latin American stocks fell on Wednesday as concerns about a possible broadening of the European debt crisis led investors to square positions ahead of year-end.
The MSCI Latin American stocks index <.MILA00000PUS> lost 0.81 percent after gaining in the two previous sessions. The index traded within a range bound by its 50-day simple moving average at the top and the 20-day simple moving average on the bottom.
"Everything's a reason to book profits here now," said Hamilton Moreira, senior analyst with BB Investimentos in Sao Paulo. "The issue comes down to one thing: Foreigners are pulling out."
Brazilian equities surged 83 percent last year, getting more expensive relative to other lagging markets around the world, Moreira noted. Short-term prospects in other parts of the world are now luring away foreign liquidity, he said.
The Bovespa index <.BVSP> moved down 1.16 percent on Wednesday, dropping into the red for the year.
"We're at a point in the year where people usually take on less risk," said Carlos Camacho, a fund manager with GAP Asset Management in Rio de Janeiro.
Stoking risk aversion, ratings agency Moody's warned Spain on Wednesday that its debt rating could be downgraded, the latest chapter in an ongoing European debt crisis that has roiled financial markets throughout the year. [ID:nLDE6BE0B8]
A Spanish bailout could soak up far more resources than rescue packages for smaller economies like Greece and Ireland and have deeper implications for European economic growth.
Heavyweight commodity companies led the Bovespa lower,
including mining company Vale
State-controlled energy company Petrobras
Steelmakers also fell, with Gerdau
Mexico's IPC stock index <.MXX> fell 0.47 percent in thin volume, retreating from a life-high close in the previous session.
Traders said they were seeing a sharp drop in volume this month.
"We are sitting here stabbing out our eyes from boredom," said Carlos Alonso, head of trading at stock brokerage Interacciones.
Nevertheless, Mexican equities could outstrip regional peers next year, analysts noted.
"We expect Mexico's equity market to once again outperform Brazil's equity market in 2011, just as it has so far done in 2010 -- following comparatively better U.S. fundamentals and the fact that the Brazil trade seems crowded," wrote analysts from Bulltick Capital Markets in a report to clients.
Shares of mining company Grupo Mexico
Chile's IPSA index <.IPSA> rose 0.48 percent, adding to gains in the previous session.
Retailers gained, with Falabella