* Brazil could see rating downgrade if spending cap breached - CS * Mexican economic growth decelerates in August * Petrobras rallies on privatization hopes (Adds details, updates prices) By Susan Mathew and Ambar Warrick Oct 25 (Reuters) - Latin American currencies firmed on Monday, with Brazil"s real leading gains in the region as rallying commodity prices and expectations of more central bank support spurred flows into regional assets. Consumer confidence rising in Brazil for the first time in two-months further bolstered Brazil"s currency, which rallied 1.4% after losing more than 3% last week on political ructions and fiscal worries. Hawkish calls during a central bank meeting on Wednesday have risen on increasing fears of the government breaching its spending limit and fanning inflation. One of the most aggressive central banks worldwide, another 100-basis-point hike to 7.25% is expected in Brazil. The rate has already been raised by 425 basis points so far this year. "The higher government expenditures are expected to worsen the dynamics of the primary deficit, while higher nominal and real interest rates are likely to increase interest payments," said Credit Suisse analysts Solange Srour and Lucas Vilela. "As a result, stabilization of the gross debt-to-GDP ratio in the medium term has become more difficult. ... In addition, the country could suffer a downgrade in its sovereign debt rating as the spending ceiling was highlighted by credit rating agencies as an important fiscal anchor." Oil firm Petrobras and iron ore miner Vale rose 5.1% and 1.4%, respectively, and were the biggest boosts on Sao Paulo"s Bovespa index which jumped 2.6% to move away from 11-month lows. Petrobras was also boosted by Brazilian President Jair Bolsonaro reiterating that he was considering the privatization of the state-run oil firm. Crude and copper prices jumped on tight supply, while iron ore prices recovered after a sell-off. Oil exporter Colombia"s peso rose slightly. Mexico"s peso lagged its peers, falling mildly as data showed the country"s economic growth decelerated in August. Stocks in Mexico extended losses into a sixth session, falling 0.1%. The world"s top copper producer Chile"s currency rose 0.8%, while Chile"s IPSA extended gains to a fourth straight session. Broader emerging market peers had a choppy session earlier in the day after rising COVID-19 cases in China further stoked fears about slowing growth in the world"s second largest economy. In Argentina, the informal peso rate had weakened 2.05% to 195 per dollar on Friday as inflation soars and policy uncertainty mounts ahead of November congressional elections. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1298.02 0.38 MSCI LatAm 2211.31 3.62 Brazil Bovespa 109053.15 2.59 Mexico IPC 51845.39 -0.09 Chile IPSA 4167.46 2.03 Argentina MerVal 89698.84 3.223 Colombia COLCAP 1400.41 0.06 Currencies Latest Daily % change Brazil real 5.5478 1.37 Mexico peso 20.1660 0.00 Chile peso 808.47 0.75 Colombia peso 3764.8 0.02 Peru sol 3.9682 -0.24 Argentina peso 99.4800 -0.07 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Shailesh Kuber and Jonathan Oatis)