EMERGING MARKETS-Latam FX, stocks rise as Trump's softer tariff take provides relief

By Purvi Agarwal

Jan 24 (Reuters) - Most Latin American currencies were higher on Friday, with the Mexican peso steering gains, after U.S. President Donald Trump's softer stance on Chinese tariffs and his call for lower U.S. interest rates weighed on the dollar.

The Mexican peso MXN= climbed 1%, set for its best week since September, as Trump said he could reach a trade deal with China, providing some relief to investors in heavily tariff-exposed economies such as Mexico, China and Canada.

The onshore Chinese yuan CNY=CFXS touched its highest in over a month, while the loonie CAD=D3 was up 0.3%.

Prospects of less stringent tariffs weighed on the dollar index =USD that measures the greenback against a basket of developed market currencies, pulling it down to late-December levels.

Threats of U.S. tariffs have cast a shadow over certain EM assets since Trump won the November presidential election, and uncertainty over their implementation kept EM currencies volatile and reactive to headlines through the week.

"Everything is about negotiation with Trump. He knows it is extremely complicated and dangerous to put tariffs immediately because at the end of the day, the first victims will be the US small and medium sized corporates," said Mabrouk Chetounane, head of global market strategy at Natixis Investment Managers.

"If Trump is adopting a more accommodative stance, it will benefit Mexico as well."

Away from tariffs, the Brazilian real BRL= strengthened 0.7%, briefly hitting its highest level in over a month and was set for its best week since August.

Data showed annual inflation rate in the country slowed less than expected in early January, cementing the likelihood that the central bank will hike interest rates by 100 basis points at its meeting next week. The hike was also supported by a Reuters poll.

If implemented, this would be Brazil's second full percentage point rise after its surprise move in December, amongst existing investor worries of public debt load and concerns over the government achieving its fiscal targets.

"Brazil is in an extremely fragile situation... inflation has started to decline, but we need more confirmation about decreasing inflation pressures, which could stop these rate hikes," said Chetounane.

Separately, Brazil closed 2024 with a current account deficit equivalent to 2.55% of gross domestic product (GDP), more than double the level seen in the previous year.

Chile's peso CLP= appreciated 0.6% against the dollar, set to gain for the third straight session. The Colombian peso COP= was up 0.9%.

MSCI's index tracking Latin American currencies .MILA00000CUS was up 0.8%, set for its largest weekly gain since August, while the regional stocks gauge .MILA00000PUS jumped 0.9%, on track for its sixth session of gains.

Meanwhile, a bank trade group's preliminary data showed that foreign investors added $273.5 billion to their emerging market equity and debt portfolios in 2024, nearly $100 billion more than in 2023.

Elsewhere, S&P could lower its rating outlook on Romania to negative later in the day, following a similar move by Fitch last month as the country's attempts to restore investor confidence and lower the European Union's highest budget deficit hit early hurdles.

Key Latin American stock indexes and currencies: