EMERGING MARKETS-Latam markets drop as Trump's tariff plans strengthen dollar, US bond yields

By Lisa Pauline Mattackal and Purvi Agarwal

Jan 8 (Reuters) - Indexes tracking Latin American stocks and currencies fell on Wednesday, as expectations for higher-for-longer U.S. interest rates and fresh concerns about President-elect Donald Trump's tariff plans lifted the dollar and U.S. Treasury yields.

The MSCI index of Latin American currencies .MILA00000CUS fell 0.7% at 1517 GMT, while the index tracking stocks in the region .MILA00000PUS was down 1.4%.

CNN reported that U.S. President-elect Donald Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries, that lifted the already rising dollar index =USD.

"With leading indicators of US inflation pointing upward in anticipation of US import tariffs, a divergent US monetary policy remains the operative driver of FX markets," said Thierry Wizman, Global FX & Rates Strategist at Macquarie.

EM currencies had kicked off the week on a broadly positive note, as the dollar weakened on reports that Trump's tariff could be less aggressive than expected, even after the President-elect refuted the claims.

They have since retraced much of those gains, with a global bond selloff lifting U.S. Treasury yields as well as the dollar as tariff worries compounded expectations of a more cautious pace of rate cuts from the U.S. Federal Reserve.

Higher U.S. rates dim the appeal of riskier, but relatively higher-returning emerging market assets.

The Mexican MXN= and Colombian peso COP= fell 0.3% and 0.1% respectively, while the Chilean peso CLP= was flat.

Data showed that industrial production in Brazil fell for the second month in a row in November, in a sign the economy may be cooling as the central bank tightens monetary policy to tame inflation.

The Brazilian real BRL= weakened 0.4% against the dollar. Central bank data also showed the country withdrew more from savings accounts than they deposited for a fourth straight year in 2024. The country's main stock index .BVSP was down 1%.

"Sentiment around Brazil's deficit outlook (is) dependent on robust growth... any growth disappointments, coming from internal or external shocks, will reignite debt concerns," said Wizman.

Investors will now assess U.S. non-farm payrolls data on Friday for more clues on the Federal Reserve's monetary policy trajectory in 2025.

A Reuters poll showed that Chile's central bank is expected to hold benchmark rates at 5% at its January meeting. The S&P's index for Chile .SPIPSA was off 0.1%, after three sessions of gains.

The Peruvian sol PEN= was little changed against the dollar ahead of a central bank policy announcement due later in the week.

HIGHLIGHTS

** Trump will not rule out force to take Panama Canal, Greenland

Key Latin American stock indexes and currencies at 1517 GMT:

(Reporting by Purvi Agarwal and Lisa Mattackal in Bengaluru)

((Purvi.Agarwal@thomsonreuters.com;))