EMERGING MARKETS-LatAm assets gain as risk-on sentiment returns, Brazil's rate call in focus

By Pranav Kashyap and Sukriti Gupta

Nov 5 (Reuters) - Most Latin American currencies and stocks rose on Wednesday, as risk-on sentiment returned to global markets following a sell-off in the previous session, while investors awaited Brazil's interest rate decision.

A sharp rebound in U.S. private payrolls in October also aided sentiment. Meanwhile, the lawyer representing U.S. President Donald Trump's administration faced tough questions from the Supreme Court over the legality of the sweeping tariffs.

The real BRL= rose 0.7%, while stocks in Sao Paulo .BVSP climbed to a record high, up 1.6%, and were set to log their 11th consecutive day of gains, the longest streak since July 2024.

Brazil's central bank is widely expected to hold the Selic rate at 15%, a near two-decade high, keeping pressure on stubborn inflation that is still overshooting its 3% target.

A towering yield gap over the U.S. Federal Reserve's 3.75%-4% target range has supercharged carry trades and foreign inflows, helping the real, which is up 15% year-to-date.

But with growth showing signs of cooling, investors will dissect the central bank's statement for hints of when cuts might finally come, potentially not until 2026, and how vulnerable the currency remains to shifts in U.S. policy and risk appetite.

"The Brazilian central bank has been conducting monetary policy in a consistent and right direction because inflation has shown some stubbornness throughout the year. The strong monetary restriction is really domesticating Brazilian inflation," said Alfredo Coutino, director for Latin America at Moody's Analytics.

"My impression is that (the bank) will keep the policy rate at 15% in nominal terms until the end of this year."

Latin American assets are riding a wave of global portfolio rebalancing this year, as investors pivot away from U.S. markets in search of higher yields and calmer political waters.

Countries like Brazil and Chile have emerged as favorites, not only for their attractive interest rates, but also for offering a relatively quieter political backdrop and more predictable macro environments.

Valuation fears resurfaced this week on Wall Street and in Asia that have had record-breaking runs this year, driven primarily by enthusiasm for artificial intelligence.

An index tracking the region's equities .MILA00000PUS rose 1.9%, hitting its highest since January 2024, while a similar gauge for currencies .MILA00000CUS ticked up 0.3%.

The Mexican peso MXN= gained 0.4%, while equities .MXX, up 1.8%, hit an all-time high.

Unlike Brazil, Mexico's central bank is primed to cut rates on Thursday, as Banxico looks to jump-start an economy that could have shrunk in the third quarter.

Recent data showed headline inflation cooled more than expected in mid-October, but a sticky core still sits above the 3% target. A poll showed Mexico's headline inflation is expected to ease in October, further adding to bets for a rate cut.

Chile heads into a pivotal vote in less than two weeks, with ruling-coalition contender Jeannette Jara leading ahead of the November 16 first round, a recent poll suggests. Chile's peso CLP= rose 0.4%, while the local stock index .SPIPSA added 1.2%.

Argentine stocks .MERV declined 1.5%, while the local peso ARS=RASL added 0.3%. Argentina's central bank cut its one-day peso repo rate by 300 basis points to 22%, Bloomberg News reported.

Colombia's main stock index .COLCAP hit a fresh peak, up 0.9%, while the peso COP= gained 0.8%.

Key Latin American stock indexes and currencies: