* Brazilian real leads declines in Latam * U.S. Treasury nominee Yellen talks up stimulus * Mexican economy likely shrank 5.4% y/y in Dec (Updates prices throughout, adds comments) By Shreyashi Sanyal Jan 19 (Reuters) - Currencies in Latin America shed earlier gains on Tuesday even as the dollar softened, with Brazil"s real leading declines as investors awaited a central bank policy meeting later in the week. The real fell 0.9% after gaining just as much in morning trading. The Brazilian central bank is poised to hold its benchmark rate steady again at 2.0% on Wednesday. A Reuters poll showed the bank"s rate-setting committee - known as Copom - will likely emphasize the need for policy normalization in response to quickly developing inflation pressures. "The current policy stance suggests that the central bank is unlikely to change the policy rate anytime soon," said Gustavo Rangel, chief economist, LATAM at ING. "The apparent lack of credibility in the central bank"s pledge not to raise the policy rate from 2.0% could be blamed on the rise in fiscal uncertainties, amid the threat of potentially disruptive legislative decisions at the end of 2020, which did not materialize...This altered incentives in local markets and triggered major adjustments, especially in FX markets." Most emerging market currencies and other risk assets had gained earlier in the session from the greenback"s weakness, with U.S. Treasury Secretary nominee Janet Yellen talking up the need for major U.S. fiscal stimulus to lawmakers. Mexico"s peso edged 0.1% lower as a preliminary reading that showed the country"s economy is likely to have contracted by 5.4% in December compared with the same month a year earlier. The Chilean peso fell 0.4% even as prices of copper, the country"s main export, steadied. The currency has been subjected to selling pressure since the beginning of the year in the face of ultra-low interest rates in the region and political uncertainty. However, analysts have warned that a potential headwind for the Chilean peso is more likely to be copper prices. Higher oil prices on Tuesday helped the Colombian peso strengthen by 0.5%. The country"s capital, Bogota, will impose nightly coronavirus curfews for almost two weeks and enters yet another full quarantine this weekend. The MSCI"s index for emerging market stocks hit a record high as ultra-low interest rates and stimulus hopes brightened their prospects. Consensus forecasts suggest that emerging markets stand to benefit from loose monetary policy and expectations of a steady economic recovery this year. Equities stand to gain more from such prospects, with the EM index hitting a series of record highs on the potential for better returns than fixed income and currencies. Key Latin American stock indexes and currencies at 1946 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1379.59 1.52 MSCI LatAm 2464.37 -2.11 Brazil Bovespa 120133.82 -0.91 Mexico IPC 45581.15 -1.89 Chile IPSA 4669.79 0.99 Argentina MerVal 50289.42 0.138 Colombia COLCAP 1460.14 0.39 Currencies Latest Daily % change Brazil real 5.3500 -0.86 Mexico peso 19.6915 -0.11 Chile peso 736.2 -0.35 Colombia peso 3489.53 -0.39 Peru sol 3.6138 0.02 Argentina peso (interbank) 86.2000 -0.14 Argentina peso (parallel) 153 3.92 (Reporting by Shreyashi Sanyal in Bengaluru Editing by David Goodman and Mark Heinrich)