Latin American currencies struggled for direction early on Tuesday as investors became more skeptical of China's vow to ease control over its foreign exchange rate.

The region's equity and currency markets had rallied on Monday as investors bet that a stronger yuan would prompt China to import more commodities from countries such as Brazil.

However, doubts over the speed and magnitude of the yuan's appreciation left investors warier of higher-risk assets on Tuesday.

At the weekend China said it would suddenly make its currency more flexible and the market got excited, said Andre Perfeito, an economist at Gradual Investimentos in Sao Paulo.

But China can't really do this. Anything that happens will be very gradual, he said, adding that Brazil's markets were in a particularly volatile phase.

The Brazilian real (BRBY) was bid 0.2 percent stronger at 1.768 reais per U.S. dollar on the local spot market, a day after hitting a seven-week intraday high.

The bid quote for the one-month non-deliverable forward contract BRL1MNDFOR=, one of the most popular ways to trade the real's movements due to Brazil's currency controls, fell to 1.7785 from 1.7830 at the end of the previous session, implying slightly less depreciation over the coming weeks.

A short-term risk for the Brazilian real will be the central bank's approach on FX interventions as we get closer to the 1.75 physiological level, wrote analysts at BNP Paribas in a note to clients. But Brazil's fundamental strength as a booming emerging economy should continue to dictate the real's movements, they wrote.

The Mexican currency MXN= was 0.06 percent stronger at 12.5225 per dollar. Traders said volume thinned during Mexico's World Cup soccer match against Uruguay.

The Chilean peso CLP= weakened 0.6 percent to 533.20 per dollar.

A rush of economic data in Brazil failed to give the market direction as investors kept an eye on developments abroad.

Data showed the current account deficit widened in May over the year-ago period.

Yields initially edged lower on Brazilian interest rate futures <0#DIJ:> after separate data showed inflation had slowed in the month to mid-June. Falling food prices eased pressure on the country's central bank to cool the economy by raising the cost of borrowing.

While this fall in inflation will not likely deter Brazil's central bank from hiking interest rates another 75 basis points at the July Copom meeting, slower headline inflation will reduce to near zero any risk of accelerating the pace of rate hikes, wrote Tony Volpon, a strategist with New York-based Nomura Securities, in a note to clients.

The yield on the contract due January 2011 DIJF1, one of the most heavily traded contracts of the early session, briefly dipped lower before snapping back to trade unchanged at 12.14. (Reporting by Samantha Pearson in Sao Paulo and Michael O'Boyle in Mexico City; Editing by Leslie Adler)

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