* Brazil tax reform unlikely to pass - Lower house dep. speaker * Citi sees Brazil"s real trading at 5.32 by year-end * Mexican, Colombian peso hit by tumbling oil prices * Peruvian sol outperforms as roadblock at Las Bambas mine lifted By Susan Mathew Aug 19 (Reuters) - Brazil"s real dropped 1% to lead losses among Latin American currencies on Thursday as the dollar retained its strength following U.S. Federal Reserve minutes which suggested stimulus tapering may start this year. The real hit over three-month lows, and was last trading at 5.408 to the dollar, with gathering political and fiscal headwinds weighing on the currency. The deputy speaker of Brazil"s lower house of Congress, Marcelo Ramos, said an income tax reform that introduces a 20% tax on company dividends is unlikely to pass. He also noted the apparent abandonment of fiscal austerity policies in the country due to President Jair Bolsonaro"s focus on increasing spending to win re-election next year as his popularity tumbles. "The likelihood of passing a bill with a decrease of tax collection is increasing," said strategists at Citi. They also note rising power generation costs on top of already-existing fiscal risks related to the increase of boosted cash-transfer social program. These could impact inflation as growth expectations, they warn. But they see the real trading at 5.32 per dollar by year-end on rising commodity prices and a weak currency resulting in a robust trade surplus in 2021. Brazil stock slumped 0.9% to hit near five-month lows, weakening for a seventh session in eight. Mining giant Vale sank 4.4% as iron ore prices dived 7%. Steel maker Usiminas dropped 3.2% Brazilian prosecutors asked a bankruptcy court on Wednesday to compel miners Vale and BHP Group to fully pay off their Samarco joint venture"s 50.7 billion reais ($9.47 billion) debt. Oil major Petrobras tracked an over 2% slump in crude prices. This also saw currencies of crude exporters Mexico and Colombia drop around 0.3% and 0.6% respectively. Mexico created a new debt instrument known as "Bonde F," a development bond, Deputy Finance Minister Gabriel Yorio said on Wednesday. Mexican stocks were set for their worst session three weeks, while MSCI"s index of Latam stocks hit April lows as stocks were knocked by growth and U.S. stimulus tapering worries. Peru"s sol bucked the gloom, rising 0.3% as residents near the Las Bambas copper mine in the Peruvian Andes lifted the blockade of a road used to transport the red metal after receiving overtures from President Pedro Castillo"s new government. Peru is the world"s second biggest copper producer. Key Latin American stock indexes and currencies at 1410 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1233.18 -2.25 MSCI LatAm 2340.96 -2.72 Brazil Bovespa 115619.85 -0.88 Mexico IPC 51154.66 -1.6 Chile IPSA 4318.30 -0.54 Argentina MerVal - - Colombia COLCAP 1318.82 -0.54 Currencies Latest Daily % change Brazil real 5.4089 -0.66 Mexico peso 20.1133 -0.35 Chile peso 791.7 -0.58 Colombia peso 3869.09 -0.56 Peru sol 4.0924 0.25 Argentina peso 97.2900 -0.03 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Marguerita Choy) Our Standards: The Thomson Reuters Trust Principles.