EMERGING MARKETS-Hopes for less-aggressive tariffs lift Latam stocks, FX to over two-week highs

By Lisa Pauline Mattackal and Purvi Agarwal

Jan 7 (Reuters) - Indexes tracking Latin American stocks and currencies rose to their highest in over two weeks on Tuesday, as investors continued to assess the likelihood of aggressive U.S. tariffs, though the Mexican peso retraced some of the prior session's gains.

MSCI's index of Latin American stocks .MILA00000PUS rose 1.1% to its highest since Dec. 20. A gauge of regional currencies .MILA00000CUS was up 0.4%, with both indexes on pace for a second straight session of gains.

Mexico's peso MXN=, underperformed regional peers on the day, dipping 0.2% against the dollar after jumping over 1.5% on Monday.

Continued weakness in the U.S. dollar =USD helped boost EM currencies, after a Monday report that aides to U.S. President-elect Donald Trump were exploring less aggressive tariffs than Trump had suggested during his presidential campaign.

Some gains pared, however, after Trump disputed the report.

"We do have the Trump narrative about what's he going to do, however, there is optimism about how the rest of the world, even Latin America, can improve in this pace of recovery," said Juan Perez, director of trading, Monex USA.

Latin American markets, particularly Mexico, have been under pressure as investors eyed the potential impact of Trump's threatened tariffs - the Latin American stocks index is down nearly 11% since the Nov. 5 U.S. presidential election, while the currency index has fallen 1.7%.

"Mexico is the biggest beneficiary of trading right there directly with the United States. If that really does become tremendously disrupted this year, then we can expect maybe peso to plummet, but as of right now, we see the peso sticking to these levels if not improving slightly," Perez said.

Meanwhile, Argentina's country risk index fell more than 100 basis points to 454, its lowest level since May 2018, traders said.

The country's markets have been buoyed by hopes that President Javier Milei's economic measures can stabilize its economy. The Merval stock index .MERV, which soared over 172% in 2024, rose 0.4% on the day.

Brazil's real BRBY strengthened 0.5%. Data showed Brazil producer prices rose 1.23% in November.

Chile's peso CLP= rose 0.8% on the day, though it still hovered around two-year lows.

Colombia's main stock index .COLCAP rose 0.6% to its highest intraday level in over a month as markets reopened after a holiday.

Julius Baer BAER.S said it had agreed to sell its Brazilian domestic wealth management business to Banco BTG Pactual BPAC11.SA. Shares of the Brazilian bank rose nearly 4%.

HIGHLIGHTS

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Key Latin American stock indexes and currencies at 1445 GMT:

(Reporting by Lisa Mattackal and Purvi Agarwal in Bengaluru; Editing by Nick Zieminski)

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