* Brazil's industrial output up 1.1% in March, above
forecasts
* Brazil central bank sees no financial stability risk
* Chile Senate committee approves mining royalty bill
* S&P says El Salvador debt exchange constituted default
* Latam FX, stocks up 1.1% each

By Bansari Mayur Kamdar and Ankika Biswas
       May 10 (Reuters) - 
    Latin American currencies hit an over eight-year high on
Wednesday against a weakening dollar after data showed
lower-than-expected annual U.S. inflation, supporting hopes that
the U.S. Federal Reserve could soon pause its interest rate
hikes.
    U.S. consumer prices slowed to below 5% in April for the
first time in two years, while a key inflation measure monitored
by the Fed subsided.
    The MSCI index of Latam currencies was up
1.1%, hitting its highest level since Oct. 9, 2014.
    "The broad message is that overall inflation is slowing and
that should give the FOMC grounds to keep (U.S.) interest rates
unchanged when it next meets on 14 June," said Daniel Casali,
chief investment strategist at wealth manager Evelyn Partners. 
    Brazil's real and the Mexican peso gained by
0.7% and 1.1%, respectively, against the dollar. 
    Also helping the real, data showed industrial production in
Brazil rose 1.1% in March from February.
    Meanwhile, Brazil's central bank said that bank
profitability would continue to face challenges in the medium
term as credit risk remains high. However, it said stress tests
showed no relevant risk to financial stability in Brazil.
    Peru's sol jumped 0.6% to an almost one-year high,
gaining for the fifth straight session.
        However, the country's central bank President Julio
Velarde 
    noted
     that economic growth in the first quarter "could even be
negative," although still expecting zero growth, echoing a
previous forecast.
  
    Chile's peso edged 0.2% higher against the greenback,
with a significant decline in the price of copper, the country's
main export, capping gains in the currency.
    Also aiding sentiment was the Chilean government forecasting
an annual economic growth at 0.3% this year, reversing a
previous estimate of a 0.7% contraction.
    Traders also monitored latest developments on the U.S. debt
ceiling deadlock, with President Joe Biden piling pressure on
Republican lawmakers to move quickly to raise the country's
$31.4 trillion debt ceiling or risk throwing the economy into a
recession.
    Latin American stocks advanced 1.1% to a
three-week high, with higher oil and metal prices supporting
commodity-heavy stocks. 
    Ratings agency S&P on Tuesday said a pension debt exchange
by El Salvador in April constituted a default event, but added
that new terms had remedied the default.
    
    Key Latin American stock indexes and currencies:
    
    
     Stock indexes              Latest     Daily %
                                           change
 MSCI Emerging Markets            980.59      -0.17
                                          
 MSCI LatAm                      2304.27       1.14
                                          
 Brazil Bovespa                107525.08       0.38
                                          
 Mexico IPC                     55544.46       0.17
                                          
 Chile IPSA                      5558.19       0.13
                                          
 Argentina MerVal              309526.81       0.57
                                          
 Colombia COLCAP                 1159.72       0.02
                                          
                                                   
        Currencies              Latest     Daily %
                                           change
 Brazil real                      4.9503       0.74
                                          
 Mexico peso                     17.5606       1.06
                                          
 Chile peso                        788.2       0.20
                                          
 Colombia peso                    4547.5       0.42
 Peru sol                         3.6551       0.63
                                          
 Argentina peso (interbank)     228.5000      -0.15
                                          
 Argentina peso (parallel)           467       0.86
                                          
 
    

 (Reporting by Bansari Mayur Kamdar and Ankika Biswas in
Bengaluru; Editing by Alexander Smith and Marguerita Choy)