UPDATE 2-Mexico and Brazil agree on free trade for light vehicles

Mexico's government said on Tuesday it had agreed to free auto trade with Brazil on light vehicles, subject to a 40 percent regional content requirement, paving the way for more liberal commerce between Latin America's two biggest economies.

The agreement comes into effect from Tuesday, and the content requirement would be subject to current formulas for calculation, the economy ministry said in a statement. The statement did not provide details on the formula. Mexico has been seeking to diversify trading partners since U.S. President Donald Trump warned of a possible death for the NAFTA agreement that has underpinned Mexico's economy for a quarter-century.

In addition to the Brazil agreement, Mexico has renewed auto trade quotas with Argentina for the next three years, after which there would be free trade, the ministry said. For the year from Tuesday, the auto trade quota between Mexico and Argentina would increase by 10 percent, the ministry said. That would be followed by a five percent increase the following year, then another five percent the year after.

Since 2012, Mexico's fast-growing auto sector has had to contend with curbs in trade with Brazil and Argentina, whose governments have sought to protect local manufacturing. (Reporting by Dave Graham Editing by Frank Jack Daniel and Phil Berlowitz)