EMERGING MARKETS-Latam FX rises as markets weigh US inflation data; focus on tariffs

By Shashwat Chauhan

March 12 (Reuters) - Most Latin American currencies firmed on Wednesday as markets assessed a U.S. inflation reading which hinted that the Federal Reserve could cut interest rates soon, though the uncertainty around U.S. President Donald Trump's trade policies lingered.

The Mexican peso MXN= lead gains in the region with a 0.4% advance, though Brazil's real BRL= lagged with a 0.2% fall as investors also pared local inflation data.

Brazil's annual inflation exceeded 5% for the first time in over a year in February, remaining well above the official target ahead of a policy meeting at which the central bank is all but certain to press ahead with aggressive monetary tightening.

"Although a weakening economy should eventually cool prices, the weak fiscal situation will keep inflation well above the BCB's target range during the monetary policy horizon," Dev Ashish, senior Latin America economist at Societe Generale, said.

In the United States, consumer prices increased less than expected in February, but the improvement is likely to be temporary against the backdrop of aggressive tariffs on imports that are expected to raise the costs of most goods in the months ahead.

"Investors can at least take a modicum of faith that the rate hikes that the Fed put in place several years ago are continuing to work and slowly bringing down inflation to their 2% target," said John Kerschner, head of US securitised products and portfolio manager at Janus Henderson.

Traders currently see the Federal Reserve resuming cutting rates in June, with more than 70-basis-points of easing seen till the end of the year, according to LSEG data.

The U.S. central bank had last cut rates back in December.

"We believe that volatility in markets will continue apace given the daily pronouncements on tariffs coming out of the White House."

Tariff headlines continued to dominate, with U.S. Commerce Secretary Howard Lutnick saying nothing would stop President Donald Trump's expanded 25% tariffs on steel and aluminum until U.S. domestic production is strengthened, and that Trump will add copper to his trade protections.

Brazil's Finance Minister Fernando Haddad said his country would not immediately retaliate against the tariffs and would instead seek negotiations with the U.S. government.

MSCI's index for Latin American currencies .MILA00000CUS rose 0.3%, while equities .MILA00000PUS advanced 0.4%.

Argentina .MERV led gains among local bourses with a 2.2% jump, while Chile .SPIPSA lagged with a 0.3% fall.

Elsewhere in emerging markets, South Africa's rand ZAR= was last down around 1% after the National Treasury proposed a smaller hike in value-added tax in a revised budget aimed at ending deadlock within the coalition government, but it was not clear if it would get the support in parliament to pass.

Ukraine's international dollar bonds advanced around 1 cent a piece after Kyiv expressed support for Washington's proposal of a 30-day ceasefire with Russia.

The National Bank of Poland (NBP) left its main interest rate unchanged at 5.75%. The zloty EURPLN= held firm at 4.19 per euro.

Key Latin American stock indexes and currencies: