Updates with afternoon trading levels

By Johann M Cherian, Avinash P and Purvi Agarwal

May 13 (Reuters) - Brazilian assets slid on Wednesday, with the real leading declines among Latin American currencies as investors assessed a report linking right-wing Presidential candidate Flavio Bolsonaro to Daniel Vorcaro, the jailed former owner of liquidated Banco Master.

The real BRL= depreciated 2.2% to 5 per dollar and was headed for its weakest daily performance in nearly two months, while stocks .BVSP fell 1.8% dragged down by a 2.6% slump in Petrobras PETR4.SA.

The Intercept Brasil reported that Flavio negotiated with Vorcaro to finance a film about the life of his father, former president Jair Bolsonaro, at a time Banco Master was being investigated for a liquidity crisis and violations of financial system rules.

Brazil is facing several economic challenges under the current administration, including high borrowing costs and concerns over deteriorating public finances. Latest polls show a tight race between President Luiz Inacio Lula da Silva and Senator Flavio Bolsonaro ahead of this year's pivotal presidential election.

On Wednesday, the government also announced a direct subsidy for gasoline prices, though it said the measure would be fiscally neutral.

Meanwhile, investors also sold local currency bonds, sending the yield on the 10-year local currency bond BR10YT=RR up 34 basis points to a more than one-month high.

The real is the best performing currency in the region this year, as analysts pointed to the country benefiting from positive terms of trade and higher oil prices due to Middle East tensions.

"The move up toward 5 (real per dollar) in that sense is far from catastrophic. A cheapening of a prior rich currency is always a risk factor when it has been stretched away from fair value," said Padhraic Garvey, regional head of research, Americas, Head of Global Rates and Debt Strategy at ING.

Garvey sees the real at fair value of 5.25 per dollar.

Regional currencies came broadly under pressure as the U.S. dollar appreciated, with investors pricing in hawkish Federal Reserve monetary policy after data showed producer prices posted their biggest gain since early 2022.

MSCI's gauge tracking regional currencies .MILA00000CUS weakened 1.1%, while the stocks index .MILA00000PUS declined 2.2%.

The Colombian government auctioned off 6 trillion pesos ($1.6 billion) in domestic TES government bonds in the largest auction in the country's history, according to market sources.

The local peso COP= dipped 0.4%, to hit its weakest level in over two months.

Focus shifted to a meeting between the Chinese and U.S. presidents as market participants also weighed the prospect of a peace deal between Tehran and Washington.

Bucking the trend, Chile's peso CLP= rose 0.9%, leading gains in the region, as copper prices hit their highest since January 29, supporting the copper-exporting nation. Stocks .SPIPSA, however, fell 2%, the steepest drop among regional equities.

Mexico's peso MXN= and stocks .MXX rose 0.22% each.

Credit ratings agency S&P on Tuesday revised Mexico's outlook to "negative" from "stable", citing the risk of very slow fiscal consolidation that could lead to a faster-than-expected buildup in government debt and a higher interest burden.

Elsewhere, many of Ukraine's bonds traded around record highs, after rallying earlier in the week. Russian President Vladimir Putin had said over the weekend he thought the Ukraine war was coming to an end.

Key Latin American stock indexes and currencies:

Latin American market prices from Reuters
Equities	Latest	Daily % change
MSCI Emerging Markets .MSCIEF	1704.68	0.34
MSCI LatAm .MILA00000PUS	3090.83	-2.11
Brazil Bovespa .BVSP	177191.43	-1.75
Mexico IPC .MXX	70189.08	0.22
Chile IPSA .SPIPSA	10425.31	-2.02
Argentina Merval .MERV	2737460.8	-1.99
Colombia COLCAP .COLCAP	2078.38	-0.49
Currencies	Latest	Daily % change
Brazil real BRL=	5.0026	-2.24
Mexico peso MXN=	17.1794	0.22
Chile peso CLP=	887.44	0.96
Colombia peso COP=	3779.54	-0.45
Peru sol PEN=	3.4173	0.43
Argentina peso (interbank) ARS=RASL	1391.5	-0.40
Argentina peso (parallel) ARSB=	1400	1.07