EMERGING MARKETS-LatAm stocks plunge as global sentiment, domestic policies weigh

Updates with afternoon trading

By Niket Nishant and Twesha Dikshit

Dec 17 (Reuters) - Latin American stocks posted their biggest one-day drop in almost two weeks on Wednesday, with global sentiment souring over tech stocks, while Brazilian equities fell for a second consecutive day due to local policy signals.

The MSCI index that tracks Latin American equities .MILA00000PUS dropped 2.6%, while a gauge of regional currencies .MILA00000CUS slipped 0.7%.

Wall Street indexes dipped to three-week lows with artificial intelligence stocks driving the decline.

Lawmakers in Brazil's lower house approved a bill reducing federal tax benefits for several sectors, a day after the central bank reiterated its wait-and-see stance and signaled it would keep interest rates on hold for a prolonged period.

Brazil's Bovespa index .BVSP dropped 1% while the real BRL= weakened 0.2% against the greenback.

The selloff highlights unease over a combination of near-term policy uncertainty and longer-term political risks, as markets reassess Brazil's fiscal outlook ahead of the 2026 presidential race.

Concerns about political turbulence have emerged in recent weeks after Senator Flavio Bolsonaro, the eldest son of former President Jair Bolsonaro, announced his bid for the election, denting expectations among investors for a more seasoned, market-friendly candidate.

"Our interpretation is that markets think Flavio is less likely to win against President Luiz Inacio Lula da Silva. And that puts Lula's party in a more competitive position, and gives it more leverage to perhaps pursue populist policies," said Felipe Camargo, lead global economist at Oxford Economics.

MIXED CUES KEEP INVESTORS ON EDGE

In Chile, stocks .SPIPSA dipped 0.5% posting a third day of declines, with investors closely watching developments after far-right candidate Jose Antonio Kast's victory in the presidential election.

The central bank raised its forecast for gross domestic product growth next year. The peso CLP= fell 0.4%.

Mexican stocks .MXX dropped 1.2% while Colombian stocks .COLCAP were off 1.1%.

Brazil and Mexico's top leaders urged restraint in the face of escalating actions from the U.S. toward Venezuela. Tensions between the U.S. and Venezuela have caused jitters and concerns over oil supplies.

U.S. President Donald Trump ordered a blockade of all sanctioned oil tankers entering and leaving Venezuela, a move that could disrupt oil flows and sour investors' sentiment towards the region.

"The US's actions reveal that the 'economic warfare' approach being taken against Venezuela is still the 'go-to' tactic," Macquarie analysts said in a note.

"It is applied in the hope that by denying Venezuela its hard currency receipts and access to US dollar income, the resulting impoverization will create enough political pressure to help unseat President Nicholas Maduro without 'boots on the ground.'"

Foreign currency flows to Venezuela's private sector, both in cash and cryptocurrency, are expected to fall in the coming weeks, according to analysts and business leaders, and could stoke inflation in the OPEC member.

Key Latin American stock indexes and currencies at 20:17 GMT:

(Reporting by Niket Nishant and Twesha Dikshit in Bengaluru, editing by Ed Osmond, Rod Nickel)

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