EMERGING MARKETS-Most Latam currencies start 2025 on shaky ground; Mexican peso rebounds

By Lisa Pauline Mattackal

Jan 2 (Reuters) - Most Latin American currencies dipped on Thursday, starting the year on the back foot against a resurgent U.S. dollar as investors braced for the impact of Donald Trump's presidency and likely higher-for-longer U.S. interest rates on the region's markets.

However, Mexico's peso MXN= bucked the trend, rising 0.5% and recovering some ground after weakening nearly 1% on Dec. 31. It had slumped nearly 23% in 2024, its biggest annual loss since the 2008 financial crisis.

MSCI's index of regional currencies .MILA00000CUS was down 0.2% as the dollar =USD jumped 0.4%.

Brazil's real BRBY dipped 0.3% and stocks .BVSP lost 0.3%. The country's S&P Global's December manufacturing Purchasing Manager's Index $(PMI.UK)$ came in at 50.4, from 52.3 the previous month.

Other regional equities fared better, with bourses in Mexico .MXX, Colombia .COLCAP and Argentina .MERV higher on the day. MSCI's index of regional stocks .MILA00000PUS rose 0.1%.

Investors were broadly cautious as they returned from the New Year's Day holiday, eyeing an uncertain emerging market outlook for 2025 with the Federal Reserve expected to take a more hawkish stance on policy easing.

Additionally, incoming U.S. president Donald Trump's threatened global tariffs, if enacted, are expected to hit global trade and increase inflation, particularly weighing on countries such as Mexico.

"The USD is starting 2025 off as it appears likely to continue, at least for the next few months," said Shaun Osborne, chief FX strategist at Scotiabank.

"Investors continue to focus on the outlook for slower and limited rate cuts from the Fed versus other major central banks in the coming year, as well as the anticipation that the second Trump presidency will deliver USD-supportive policies."

Gains in the U.S. dollar and Treasury yields, primarily due to changes in the outlook for U.S. rates, hit emerging markets sharply in December. Several EM central banks including Brazil were forced to intervene to prevent excessive currency declines.

Latin American markets broadly underperformed EMs in 2024. MSCI's index of regional stocks slumped over 30%, its worst year since 2015, and the currency index notched its biggest annual loss since 2020.

On the day, Chile's peso CLP= dipped 0.7% as copper prices hovered around a five-month low on concerns about slowing global demand. Chile is the world's largest copper producer.

Data showed Chile's economic activity rose 2.1% on an annual basis in November, the fifth consecutive month of expansion.

Shares of Brazilian airline Gol GOLL4.SA jumped 8.5% after the company announced it had reached a deal with the tax revenue service to settle some fiscal obligations.

Key Latin American stock indexes and currencies at 1506 GMT:

(Reporting by Lisa Mattackal in Bengaluru; Editing by Mark Heinrich)

((LisaPauline.Mattackal@thomsonreuters.com;))