* Brazil"s real jumps 1.9% * Chile"s peso up, 25 bps hike expected * Latam FX rises, Powell testimony in focus By Ambar Warrick July 14 (Reuters) - Brazil"s real shot up on Wednesday after a significant upgrade to the country"s economic growth forecast, while Chile"s peso rose as investors penciled in a possible rate hike by the central bank later in the day. The real jumped 1.9% to 5.0844 to the dollar, after Brazil"s economy ministry said the country"s GDP was expected to grow 5.3% in 2021, far more than a previous forecast of 3.5%. The new forecast supports market expectations of improving growth in Latin America"s largest economy, as it opens up from COVID restrictions. Expectations of strong growth have also helped the real weather political noise from a growing corruption scandal. Data on Tuesday also showed Brazil"s services sector activity exceeded pre-pandemic levels in May. Brazilian stocks rose 0.7% in early trade. Chile"s peso added 0.2%, with investors expecting a 25 basis point rate hike by the bank to 0.75%, given some hawkish commentary from the minutes of the bank"s last meeting. With inflation also on the rise, many expect the bank to step in and curb any further price pressures. Increasing economic growth expectations for the country have also reduced the need for overly accommodative policy. "Overall, the sharp recovery of demand following the March-April lull, solid external demand and firmer terms of trade, above-target inflation, pervasive fiscal stimulus, and extremely low nominal policy rate, fully support the beginning of a gradual process of monetary policy normalization," Goldman Sachs analysts wrote in a note. Tighter policy has become a common trend across emerging markets this year, as more economies lift COVID-related curbs. Carryover effects from pandemic-induced stimulus measures are also expected to boost inflation. Other Latin American currencies also rose on Wednesday, recovering from recent losses after a spike in U.S. inflation raised fears of early policy tightening by the Federal Reserve. Mexico"s peso added 0.6%, while Colombia"s peso rose 0.5%. Mexico"s peso in particular was nursing steep losses triggered by fears of government interference in the country"s energy sector. The country also recorded its biggest increase in new COVID-19 infections since February. Markets were now focusing on testimony from U.S. Fed chair Jerome Powell for more cues on the bank"s stance. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1339.75 0.02 MSCI LatAm 2613.10 1.74 Brazil Bovespa 129003.95 0.65 Mexico IPC 49403.22 0.26 Chile IPSA 4183.44 -0.36 Argentina MerVal - - Colombia COLCAP 1293.47 -0.02 Currencies Latest Daily % change Brazil real 5.0844 1.90 Mexico peso 19.9175 0.69 Chile peso 747.75 0.20 Colombia peso 3798.57 0.54 Peru sol 3.9685 0.19 Argentina peso 96.1500 -0.02 (interbank) (Reporting by Ambar Warrick Editing by Marguerita Choy) Our Standards: The Thomson Reuters Trust Principles.