EMERGING MARKETS-Latam FX jumps to one-month high, details on tariffs awaited

Updates to mid-session trading

By Purvi Agarwal, Marc Jones and Pranav Kashyap

Jan 22 (Reuters) - An index tracking Latin American currencies soared to its highest level in over a month on Wednesday, as a wave of cautious optimism came after U.S. President Donald Trump refrained from immediately imposing the steep tariffs he had previously threatened.

The Mexican peso MXN= rose 0.7% against the U.S. dollar.

This uptick followed a dip on Tuesday when Trump hinted at potentially imposing substantial tariffs on Mexico and Canada starting Feb. 1, causing jitters.

Last year, the peso suffered a dramatic decline, losing over 20% of its value against the dollar – its worst annual performance in 16 years. The currency was battered by a combination of tariff threats, domestic political uncertainty, and persistently high U.S. interest rates.

As the Bank of Mexico prepares to make its decision on interest rates on Feb. 5, Olga Yangol, head of EM research & strategy at Credit Agricole CIB said that the central bank might consider holding rates steady if the peso faces further pressure from potential tariffs.

However, providing some respite in the session was the U.S. dollar =USD, which slipped to a two-week low.

Several analysts caution that volatility in emerging market assets is likely to remain elevated in the coming weeks. Investors are expected to closely monitor whether President Trump will adhere to his aggressive trade rhetoric or if a more tempered approach will prevail.

"This rally is likely to be short-lived. Just because we didn't see certain orders on day one, doesn't mean that they are not forthcoming," Yangol added. "It's premature for markets to price out the threat of tariffs."

Among other hard-hit currencies, the Brazilian real BRL= rose 1.39% against the dollar, set for its third straight session of gains after its 27% plunge last year.

Brazilian government officials reaffirmed their commitment to balancing public accounts, as markets continue to question the administration's ability to meet its fiscal targets, which sent the real to record lows last month.

Economists have ramped up bets on Brazil's interest-rate projections this year, citing rising inflation expectations and concerns over the state of the government's finances.

Currencies in the export-heavy Chilean CLP= and Colombian COP= economies jumped 1.22% and 1.17% respectively in light trading, with the Chilean peso hitting a near three-week high.

Argentina's peso ARS= was little changed. The country logged its largest energy trade surplus in 18 years last year, in another set of data that marked a win for President Javier Milei's efforts to turn the economy around.

Major investment banks such as JPMorgan JPM.N have argued that the government could lift long-imposed capital controls and even return to international bond markets this year, especially if it can seal a new IMF deal.

MSCI's index tracking Latin American currencies .MILA00000CUS was up 1.25%, while the stocks gauge .MILA00000PUS rose 1.98%. Both indexes were set for their fourth consecutive session of gains.

Chinese assets remained under pressure after fresh talks of tariffs by Trump. He said his administration was considering 10% tariffs on Chinese imports, compared with a 60% tariff he pledged during his election campaign.

"This morning we have seen 10% China tariffs are on the cards and that is throwing a bit of doubt on our more moderate tariff process (view)," said Amundi's head of emerging markets Yerlan Syzdykov.

"It is hard to have a base case scenario," he added, given the differing reports on how quickly tariffs could be introduced. "We shouldn't be complacent ... gradual does not mean more moderate."

Futures tracking China's Hang Seng Index HSIc1 rose 0.4%.

Key Latin American stock indexes and currencies:

(Reporting by Purvi Agarwal in Bengaluru; Editing by Rod Nickel and Nick Zieminski)

((Purvi.Agarwal@thomsonreuters.com;))