EMERGING MARKETS-Latin American stocks up, currencies stable as Fed chief faces criminal probe threat

By Ragini Mathur

Jan 12 (Reuters) - Latin American stocks gained while currencies were subdued on Monday as investors assessed the implications of a threatened criminal inquiry into Federal Reserve Chair Jerome Powell, which raised concerns about the independence of the U.S. central bank.

The Trump administration has threatened to indict Powell over comments he made to Congress about a building renovation project, prompting the Fed chief to call the move a "pretext" to gain more influence over the setting of interest rates.

MSCI's Latin American equities index .MILA00000PUS was up 0.4%, while the corresponding currency gauge .MILA00000CUS was little changed, even as the dollar index =USD, which measures the greenback's strength against a basket of currencies, was down 0.4%.

Both regional indexes closed last week with significant gains, despite heightened volatility after the U.S. military captured Venezuelan leader Nicolas Maduro.

"The investigation has compounded an already tense standoff over central bank independence, coming at a time when the Fed is widely expected to pause further rate cuts after cutting rates three times in the latter part of 2025. President Trump has made clear he wants rates lower," said David Morrison, senior market analyst at Trade Nation.

Regional stocks were mixed, with Brazil's Bovespa index .BVSP dropping 0.1% and Argentina's Merval .MERV down 0.7%. Meanwhile, Colombia's .COLCAP and Chile's .SPIPSA benchmark indexes gained 1.2% and 0.8%, respectively, with the latter benefitting from soaring copper prices. Chile is the world's largest copper producer.

Currencies were flat to lower against the U.S. dollar, with the Chilean peso CLP= and Mexican peso MXN= down 0.8% and 0.2%, respectively.

Geopolitical developments also dominated market discourse after Trump said on Sunday he was weighing strong responses, including military options, to a violent crackdown on ongoing Iranian protests.

The U.S. president also said no more Venezuelan oil or money will go to Cuba, ramping up pressure on Washington's long-time adversary and provoking defiant words from the leadership in Havana.

Markets last week navigated geopolitical upheaval in Venezuela following Maduro's capture. Many investors viewed this development positively, expecting U.S. actions to facilitate market-friendly reforms across the Latin American region.

In other major news, EU Commission spokesperson Olof Gill said on Monday the trade deal between the European Union and Latin American bloc Mercosur approved by EU governments on Friday can be applied before the European Parliament approves it.

Key Latin American stock indexes and currencies at 15:13 GMT:

(Reporting by Ragini Mathur; Editing by Paul Simao)

((Ragini.Mathur@thomsonreuters.com;))