EMERGING MARKETS-Latam forex up as markets balance Iran escalation and ceasefire chances

Updates with afternoon trading levels

By Shashwat Chauhan

April 6 (Reuters) - Most Latin American currencies advanced against a weaker dollar on Monday, while stocks were mixed as investors assessed the chances of easing hostilities between the U.S. and Iran amid the ongoing negotiations.

Iran said it wanted a lasting end to the war and pushed back against pressure to reopen the Strait of Hormuz while U.S. President Donald Trump warned the country could be "taken out" if it did not meet his Tuesday night deadline to reach a deal.

Tehran rejected a ceasefire proposed by the U.S. through mediator Pakistan, and said a permanent end to the war was necessary, the official IRNA news agency reported.

Risk appetite swept through global markets earlier in the day following reports that a framework to end hostilities has been put together by Pakistan and exchanged with Iran and the U.S. overnight.

"Geopolitical tensions around Iran and the Strait of Hormuz are driving energy supply disruptions, market volatility and urgent diplomatic efforts, with ceasefire talks offering limited near-term clarity," said Bob Savage, head of markets macro strategy at BNY.

Trading in most Latin American countries picks up on Monday after most regional markets were closed for the Good Friday holiday, with most currencies appreciating against a globally weaker dollar.

The Mexican peso MXN= led the bounce across the region, appreciating 0.6% against the dollar to its highest in more than 10 days, while Brazil's real BRL= inched 0.2% higher.

Peru's sol PEN= ticked 0.9% higher in light volume ahead of a local interest rate decision later this week where the country's central bank is widely expected to hold its main lending rate steady.

The Middle East conflict has led to some sharp re-pricing of interest rate expectations around the world, with Latin America currently presenting a mixed picture as policymakers grapple with the uncertainty.

Policymakers at Chile's central bank briefly considered the option of raising interest rates at their March meeting due to the geopolitical uncertainty, minutes from their March meeting showed last week.

Brazil's central bank cut its interest rates when it met in March, while Mexico's central bank also loosened its monetary policy in its last meeting.

A Reuters poll of FX strategists, however, found that Latin America's top currencies are forecast to weaken in April as policymakers turn defensive on potential economic disruptions from the U.S.-Israeli war on Iran.

Among equities, local bourses were largely mixed but MSCI's index tracking regional stocks .MILA00000PUS advanced 0.1%.

Later this week, eyes would be on a slew of inflation data expected around the world, including in Brazil, Mexico, and the U.S.

HIGHLIGHTS

** Bolivia to eliminate tax on financial transactions, restore tax credit for fuel purchases

** Iraq could restore oil exports to pre-war level within a week if Hormuz reopens, Basra Oil chief says

** Colombia finance minister says 3% inflation target should be reviewed

Key Latin American stock indexes and currencies:

(Reporting by Shashwat Chauhan in Bengaluru; Editing by Leroy Leo)

((Shashwat.Chauhan@thomsonreuters.com;))