EMERGING MARKETS-Brazil drags LatAm assets as Flavio Bolsonaro's 2026 bid rattles investors

By Niket Nishant

Dec 9 (Reuters) - Latin American stocks slipped on Tuesday, with Brazil the main drag after Senator Flavio Bolsonaro, the eldest son of former President Jair Bolsonaro, declared his 2026 presidential bid "irreversible".

The country's benchmark Bovespa index .BVSP fell 1.3%, hitting its lowest in nearly two weeks, while the real BRL= softened to levels not seen in nearly two months.

Investors had expected Jair Bolsonaro to rally behind a more seasoned, market-friendly candidate such as Sao Paulo Governor Tarcisio de Freitas.

"By insisting on keeping the candidacy within the family, the elder Bolsonaro is hurting the wider opposition campaign to unseat President Lula da Silva, who will seek a fourth term next year," said Geronimo Mansutti, senior LatAm credit analyst at Tellimer Research.

Mansutti also criticized Lula for the country's deteriorating fiscal position.

The market's moves suggest political risk is re-emerging as a key driver for Latin American assets, after a stretch when Federal Reserve policy and other macroeconomic factors dominated headlines. This may signal rougher waters ahead as regional elections approach next year.

Tarcisio pledged his support to Flavio Bolsonaro on Monday.

REGION-WIDE SELLOFF

Overall, the MSCI index of Latin American stocks .MILA00000PUS slid 0.7%, while the currencies gauge .MILA00000CUS dipped 0.2%.

In Mexico, the stock benchmark .MXX was little changed and the local peso MXN= edged 0.2% higher. On Monday, U.S. President Donald Trump threatened to impose an additional 5% tariff on Mexico if it doesn't immediately provide additional water to help U.S. farmers.

Mexican officials will have a meeting with their U.S. counterparts on Tuesday to discuss the dispute, President Claudia Sheinbaum said at a daily press conference.

Investors were also parsing comments from central bank deputy governor Galia Borja, who said that inflation risks remain tilted to the upside. Data on Tuesday showed annual inflation rate accelerated in November, landing above market expectations.

In Argentina, Economy Minister Luis Caputo said the country is looking to issue around $1 billion in bonds on Wednesday, targeting a coupon rate below 9%.

Most of the country's dollar-denominated bonds were trading slightly higher. Stocks .MERV were down 0.9%, while the Argentine peso ARS=RASL weakened 0.2%.

Chilean equities .SPIPSA fell 0.5% and were on track to snap a nine-day winning streak if current levels hold, while the peso CLP= fell 0.5% against the dollar, tracking regional weakness even after data showed a November trade surplus that beat expectations.

In an interview with Politico, Trump warned he could extend his anti-drug military operations to Mexico and Colombia, after threatening action against Venezuela earlier.

The U.S. leader has repeatedly clashed with Colombian President Gustavo Petro this year. The Colombian peso COP= slipped 0.6%.

Key Latin American stock indexes and currencies:

(Reporting by Niket Nishant in Bengaluru; Editing by Leroy Leo)

((Niket.Nishant@thomsonreuters.com;))