* Market should price hiking cycle in Colombia this year - Citi * S&P raises economic growth forecast for Brazil, Mexico * $2 billion boost to health spending in Chile as COVID cases rise * Mexican peso extends gains to day 7 By Susan Mathew June 29 (Reuters) - Colombia"s currency dropped 1% on Tuesday, a day after the central bank held interest rates as expected, leading Latin American peers lower as resurgent pandemic fears sent investors to the safety of the dollar. The Colombian peso fell for the first time in four sessions and was last trading at 3,749.16. The interest rate was held at a record low of 1.75%, and the bank held an expansionary stance as the country battles a third wave of COVID-19 and as anti-government protests have disrupted movement of goods across the country. Citi noted that central bank chief Leonardo Villar"s statement that decisions are made on a month-by-month basis suggests that while the board is not looking to move now, there is no commitment to low rates for an extended period. "This makes the overall tone neutral in our view, though some market participants are bound to read it as dovish given ... some were expecting either a hike or a more hawkish tone from the board," Citi said, adding that the market should continue to price a hiking cycle this year and as early as the third quarter. Brazil"s real fell 0.7% as the dollar made healthy gains on risk aversion. With the highly infectious Delta variant of the coronavirus disease spreading to several countries, many government have been forced to bring back curbs, spurring fears it could derail global economic recovery. In Brazil, President Jair Bolsonaro"s popularity has been hitting lows as citizens question his leadership with more than 500,000 fatalities from the virus in Brazil. Ratings agency S&P trimmed its overall growth forecast for emerging market currencies on Monday, citing slow vaccine rollouts as the biggest risk. However, it raised Brazil"s economic growth estimate to 4.7% from 3.4% and Mexico"s to 5.8% from 4.9%. Mexico"s peso bucked the trend, up 0.2%, extending gains for the seventh straight session. With cryptocurrencies gaining interest in Latam, Mexican financial authorities on Monday said that crypto assets are not legal tender in Mexico, warning that financial institutions that operate with them are subject to sanctions. This was prompted by Mexican billionaire Ricardo Salinas Pliego saying his banking business, Banco Azteca, may begin using bitcoin. Chile on Monday announced a $2 billion boost to health spending to address the coronavirus pandemic. The Chilean peso began the day firmer but gave up gains as copper prices fell. Among stocks, Brazilian petrochemical company Braskem topped Sao Paulo"s main index after a source said conglomerate Novonor, formerly known as Odebrecht, has extended through July 9 the deadline for delivery of nonbinding proposals for Braskem. Key Latin American stock indexes and currencies at 1432 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1373.24 -0.55 MSCI LatAm 2637.00 -0.92 Brazil Bovespa 126427.87 -0.79 Mexico IPC 50202.63 -0.3 Chile IPSA 4316.81 -0.75 Argentina MerVal 63599.41 -0.86 Colombia COLCAP 1268.84 -0.16 Currencies Latest Daily % change Brazil real 4.9597 -0.66 Mexico peso 19.7827 0.19 Chile peso 736.7 -0.41 Colombia peso 3749.16 -1.31 Peru sol 3.8837 0.00 Argentina peso 95.7000 -0.01 (interbank) (Reporting by Susan Mathew in Bengaluru; editing by Jonathan Oatis) Our Standards: The Thomson Reuters Trust Principles.