EMERGING MARKETS-Latin American markets fall with US tariffs, rate uncertainty in focus

Updates to mid-session trading

By Johann M Cherian and Purvi Agarwal

Feb 19 (Reuters) - Most Latin American currencies and stocks declined against a stronger dollar on Wednesday as investors priced in the likelihood of U.S. interest rates staying elevated against the backdrop of a global trade war intensifying.

MSCI's gauge of Latin American currencies .MILA00000CUS was down 0.8% against the greenback, and was on track to snap a six-session winning streak.

Minutes from the U.S. Federal Reserve's latest meeting showed President Donald Trump's initial policy proposals stoked concerns about higher inflation, adding to uncertainty about the world's most influential central bank's timeline on interest rate cuts.

In his latest round of threats, Trump said he intends to impose auto tariffs "in the neighborhood of 25%" and similar duties on semiconductors and pharmaceutical imports.

"Before resuming rate cuts, officials would need to see “further progress on inflation”, which we suspect will fail to materialise if President Trump follows through with even half of his tariff threats," said Paul Ashworth, chief North America economist at Capital Economics.

China is already in the midst of a trade war with the U.S. and after the U.S. announced duties on steel and aluminum imports, the European Union is investigating the need to tighten tariff-free steel import quotas.

Investors will also be keen to see if Trump will re-impose tariffs on Mexico and Canada after he paused them for a month on February 1, following border security agreements.

Mexico's peso MXN=, the most sensitive to tariff headlines in Latam depreciated 0.7%, while equities .MXX declined 0.6%.

Also dampening sentiment, the Bank of Mexico halved its annual growth forecast for the domestic economy, and said it now expects inflation to take longer to ease to its target of 3.0%.

Colombia's peso COP= slipped 0.1%, with higher oil prices limiting its declines, while Brazil's real BRL= weakened 0.7%.

Currencies of copper exporters Chile CLP= and Peru PEN= dipped 0.2% and 0.3%, respectively, also hurt by a drop in prices of the red metal.

On the equities front, the stock index .MILA00000PUS lost 1.4%, with Brazil's Bovespa .BVSP falling 1%.

Argentina's Merval stock index .MERV gained 0.5% and Peruvian equities .SPBLPGPT fell 0.7%.

Brokerage J.P. Morgan said equity markets in Argentina and Turkey could post returns of more than 20% this year, driven by policy reforms aimed at reducing inflation levels.

Separately, S&P Global Ratings revised its policy rate forecasts for 2025 and 2026 for nine key emerging markets, including Brazil and Mexico, with a median shift of 50 basis points higher.

Elsewhere, South Africa's rand ZAR= weakened 0.7% after the government's national budget was postponed at the last minute because of a disagreement between the political parties in the ruling coalition regarding a hike of value-added tax.

The delay triggered the sharpest selloff in the country's government bonds since December, with the 2052 maturity US836205BE37=TE down as much as 1 cent.

Key Latin American stock indexes and currencies at 2000 GMT: