* Credit conditions in Brazil improved in March- C.bank * Treasury yields hit 2-week high By Shashank Nayar April 29 (Reuters) - Latin American currencies fell on Thursday as a jump in U.S. Treasury yields and a stronger dollar outweighed strength in commodity prices, while regional stocks hovered around three-month highs. Mexico"s peso dropped 0.9%, while Chile"s peso shed 1.2%, leading losses across Latam despite expectations of improving demand pushing up oil and copper prices. U.S Treasury yields hit two-week highs on Thursday after U.S. President Joe Biden late on Wednesday proposed trillions of dollars in new spending, and after data showed American economic growth accelerated in the first quarter. Investors expect U.S. inflation to spike on the new spending measures. This in turn pressured high-risk high-yield currencies in emerging markets, as the difference in yields between risky and risk-free debt narrowed. “It is a little bit of a surprise what we have seen this morning as there doesn’t seem to be a clear rational driving the currency movements and it seems like the market are cutting straws a little bit," said Christian Lawrence, senior market strategist at Rabobank. "The Mexican peso generally drops when benchmark U.S. yield rises which seems to be the case, but we don"t see investor risk appetite being much affected." Latam currencies had rallied to three-month highs on Wednesday after dovish signals from the Federal Reserve made higher yielding assets appear more attractive. Brazil"s real was flat after jumping to its highest point since mid-February in the previous session. Credit conditions in Brazil improved in March, central bank figures showed, as a broad measure of consumer and business default ratios held steady at a decade-low, lending spreads narrowed and credit growth rose. Even then, public debt levels have surged to record highs in the country, straining government finances as a damaging wave of COVID-19 infections prompted more spending. Colombia"s peso fell 0.3% despite strong oil prices. A Reuters poll showed the country"s consumer prices are set to go up in April on food and public utility price pressures and despite ongoing effects from the coronavirus pandemic. Other Latin American currencies including the Argentine peso and Peruvian sol edged lower. Latam stocks were muted in early trade, with the MSCI"s index of regional stocks trading flat around three-month highs. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1365.47 0.04 MSCI LatAm 2437.33 0.13 Brazil Bovespa 120618.66 -0.36 Mexico IPC 48911.09 0.87 Chile IPSA 4561.21 -0.55 Argentina MerVal 49860.72 -0.366 Colombia COLCAP 1292.17 0.47 Currencies Latest Daily % change Brazil real 5.3546 0.10 Mexico peso 20.0720 -0.85 Chile peso 704.5 -1.21 Colombia peso 3704 -0.27 Peru sol 3.773 -0.11 Argentina peso 93.4900 -0.05 (interbank) (Reporting by Shashank Nayar in Bengaluru Editing by Marguerita Choy)