There are a number of Spanish writers that comment on the capybaras, most notably Pedro de Cieza de León, Gonzalo Fernández de Oviedo, and father José de Acosta. You will have trouble finding the references, as most of the authors do not use the name "capybara", but call these animals guardatinaja, guadatinaja, guaraquinaje, or puerco de agua. Of course, as mods already know how much I quote Gonzalo Fernández de Oviedo, I'm going to do it again, for he is the earliest naturalist of the New World, and he actually uses the word capivara:

Hay una cierta manera de puercos de agua, que son buena carne, y de cuatro pies, y tienen cinco uñas en cada pie y cada mano, y el pelo es áspero, de color como rubio, unos más oscuros que otros, y salen a pacer en tierra y se tornan al agua, y cuando los siguen, se zabullen y salen de rato en rato, pero crían en tierra; y llámanlos de agua, porque les es muy ordinario, y las más veces los matan en el agua. Llaman los indios a estos puercos, capivaras.

Translation: There is a certain manner of water pigs, they are good meat, with four feet, and they have five nails in each foot and hand. Their fur is harsh, blondish in colour, some darker than others, and they get out of the water in order to pasture, and go back to the water, they dive and resurface from time to time, but they give birth on land: and they are called "watery" because it is very ordinary to them, and most of the time they are killed in the waters. The indians call these pigs capivaras.

The Spanish sources tend to compare these animals to pigs due to their size and their meat, or to hares on the basis of being herbivores and the type of fur they have. None of the sources I know of compare these animals to lambs.

Other relevant sources are:

- Pedro Cieza de León, Crónica del Perú, ff. 375, 377, and 379.

- Juan de Castellanos, Elegías de claros varones de Indias, fol. 16b.

- José de Acosta, Historia natural y moral de las Indias, book IV, chapter XXXVII

- Antonio Vázquez de Espinosa, Compendio y descripción de las Indias occidentales, page 641.

If you are interested and speak Spanish, there is a brilliant article on the capybara in the Spanish sources from the journal Cespedesia, vol. IV.