EMERGING MARKETS-Latam markets rise; Mexico's peso under pressure following inflation report

Updates to mid-session trading

By Lisa Pauline Mattackal and Pranav Kashyap

Jan 9 (Reuters) - Latin American markets rose on Thursday as regional stocks surged and most currencies regained some ground against the U.S. dollar, which was largely driven by a slight dip in U.S. Treasury yields, relieving some pressure on emerging market assets.

In Mexico, the peso MXN= faced downward pressure, dipping 0.67%. Mexico's headline inflation rate eased more-than-expected in December, to 4.21% on an annual basis from November's 4.55%.

The Bank of Mexico indicated it could increase the size of cuts to its benchmark interest rate in future meetings, according to minutes of its December meeting.

"The larger-than-expected fall ... keeps the door open for another 25bp cut at Banxico's February meeting," said Kimberley Sperrfechter, emerging markets economist at Capital Economics.

"But a lot will hinge on moves on the peso. Renewed downward pressure on the currency...would probably prompt Banxico to pause its easing cycle," she said.

In Argentina, its benchmark index .MERV rose nearly 2%. The nation made a bold move to regain investor confidence by repaying over $4 billion in bonds. This significant step comes as libertarian President Javier Milei aims to strengthen ties with creditors and rebuild the country’s foreign currency reserves.

The MSCI index tracking Latin American currencies .MILA00000CUS rose by 0.5%, and a similar index for regional stocks .MILA00000PUS gained 0.79%, as the U.S. dollar steadied following its recent rally.

Investors remained attentive to President-elect Donald Trump's tariff plans and robust U.S. employment data, which hinted at fewer interest rate cuts this year, initially boosting the dollar and Treasury yields.

However, with the U.S. 10-year yield easing slightly, markets were poised for an early close ahead of Friday’s anticipated U.S. nonfarm payrolls report. USD/

Throughout 2024, Latin American markets lagged behind broader emerging markets due to concerns over rising U.S. rates and potential tariffs from Trump. The Mexican peso was particularly vulnerable, reflecting anxiety over trade tensions given its significant export volume to the U.S.

In Brazil, retail sales volumes fell 0.4% in November, surpassing the forecasted 0.2% drop, indicating signs of economic cooling. Nevertheless, Brazil's real BRL= strengthened by 0.88%.

A Reuters poll suggested a slightly stronger Brazilian real by the end of 2025, while the Mexican peso might weaken to 20.90 per dollar.

Shares of Brazilian airlines Azul AZUL4.SA and Gol GOLL4.SA were up 4.3% and 10.3%, respectively, after local media reported they were moving closer to a potential merger.

Peru's sol PEN= strengthened 0.28% against the dollar. Its central reserve bank (BCRP) placed a 700 million soles foreign exchange swap on Thursday and is due for an interest rate announcement at 6 p.m. ET (2300 GMT).

Elsewhere, Lebanon's dollar bonds rose after the election of army chief Joseph Aoun as president, marking a significant political development since 2022.

Lebanon's international bonds XS0707820659=TE, XS1586230051=TE saw an increase of 1.3 to 1.6 cents on the dollar.

HIGHLIGHTS

** Brazil consumer prices expected to have gained traction in Dec.

** As Maduro inauguration looms, Venezuela opposition plan street protest

Key Latin American stock indexes and currencies:

(Reporting by Lisa Mattackal in Bengaluru; Editing by Bernadette Baum and Diane Craft)

((LisaPauline.Mattackal@thomsonreuters.com;))