EMERGING MARKETS-Latin American markets waver after Fed holds rates steady; focus turns to Brazil's central bank

Updates to mid-session trading

By Purvi Agarwal, Johann M Cherian

Jan 29 (Reuters) - Indexes tracking Latin American currencies and stocks struggled for direction on Wednesday after the U.S. Federal Reserve left its benchmark interest rate unchanged, while investors braced for U.S. tariffs and a monetary policy decision in Brazil.

The Fed held its policy rate in the 4.25%-4.50% range and offered little insight into when further reductions in borrowing costs may take place, adding to uncertainty for central banks across emerging markets.

MSCI's gauge of Latin American currencies .MILA00000CUS was last up 0.1% against a stronger U.S. dollar, while an index tracking equities in the region .MILA00000PUS dipped 0.1%.

Financial markets also are awaiting the Brazilian central bank's latest policy decision on Wednesday, with economists forecasting it will hike its key interest rate by a 100 basis points to 13.25% against a backdrop of worsening inflation.

The Brazilian central bank's policy decision will be the first under the leadership of Gabriel Galipolo, President Luiz Inacio Lula da Silva's choice to head the central bank.

The real BRL= slipped 0.1% on Wednesday, while the local Bovespa equities index .BVSP declined 0.2%. The yields on the 5-year BR5YT=RR and 10-year BR10YT=RR sovereign bonds ticked up by four and seven bps, respectively.

"A signal of further rate hikes is likely, but the BRL's risk lies in a probable recurrence of fiscal concerns in 2025, not monetary policy," Thierry Wizman, global FX and interest rates strategist at Macquarie, said in a note.

Risk sentiment was broadly fragile as markets waited to see whether U.S. President Donald Trump will carry out a threat to impose tariffs on Mexico and Canada on Feb. 1.

Mexico's peso MXN=, among the most exposed to possible U.S. tariffs, was last flat in volatile trading, while the local stock index .MXX dropped 0.3%.

Mexican President Claudia Sheinbaum said she did not believe the U.S. would impose tariffs on Mexico on Feb. 1, after a White House spokesperson said Trump still planned to meet that deadline.

Threatened tariffs and the prospect of higher-for-longer rates in the U.S. have pressured demand for certain emerging market assets since last year, adding to concerns over an uncertain global growth outlook.

Colombia's peso COP= appreciated 1%, rebounding after two-straight days of declines, after the country came to the brink of a trade war with the U.S. The local COLCAP equities index .COLCAP rose 1.8%.

The Chilean peso CLP= gained 0.4%, while the country's stock index .SPIPSA added 0.7% after the central bank held its benchmark interest rate at 5% on Tuesday.

The Peruvian sol PEN= was 0.5% higher. Reuters reported that the country plans to issue up to three sovereign bonds this year to finance its ballooning fiscal deficit.

Meanwhile, Argentina's deregulation tsar Federico Sturzenegger plans deeper cuts this year. The country's stock index .MERV was up 3.8%.