EMERGING MARKETS-Trump's auto tariffs drag Latam currencies; Banxico cuts rates

By Shashwat Chauhan and Nikhil Sharma

March 27 (Reuters) - Latin American currencies fell on Thursday, as U.S. President Donald Trump'snew tariffs on auto imports spurred growth concerns, while the Bank of Mexico lowered policy rates by half a percentage point.

The Mexican peso MXN= dropped 0.9%, hitting a more than two-week low and set for its biggest daily fall in nearly two months after Trump unveiled a 25% tariff on imported vehicles, which will take effect on April 3, a day after he plans to announce reciprocal tariffs.

Mexico is among the top suppliers of automotive products to the United States.

The Colombian peso COP= and Chilean peso CLP= fell over 1% each, while MSCI's index tracking Latin American currencies .MILA00000CUS fell 0.5% to near two week low.

The Bank of Mexico slashed its benchmark rates by 50 basis points to 9%, as expected, amid cooling inflation and trade uncertainties, as Latin America's second-largest economy grapples with a weakening economy.

Policymakers warned that changes in the U.S. had made its forecasts uncertain.

"Banxico remains focused on fully controlling inflation while simultaneously supporting the recovery, despite persistent global uncertainty," said Andrés Abadía, chief LatAm economist at Pantheon Macroeconomics.

"We expect another 50 (basis point) cut at the next policy meeting, followed by a likely deceleration to 25 bps in subsequent meetings."

Implied volatility options to buy or sell Mexican pesos overnight MXNONO=FN were trading at 10.51 vols, their highest in over three weeks. However, the country's benchmark index .MXX jumped 1.2% to a more than two-week high.

In Argentina, Economy Minister Luis Caputo said the South American nation is targeting a $20 billion deal with the International Monetary Fund, formally putting a figure on the long-mooted program for the first time.

The local stock index .MERV fell 1.1%.

The country posted a current account surplus of $1.03 billion for the fourth quarter of last year, compared to a deficit of $2.67 billion recorded a year earlier

Gains in the region's commodity stocks helped lift MSCI's index of South American equities .MILA00000PUS 0.5%.

Brazil's main index Bovespa .BVSP rose 0.5%. Brazil's central bank raised its inflation projections for the long term despite anticipating weaker economic activity this year, and said this scenario makes reaching its 3% target challenging.

Moreover, Brazil's 12-month inflation rate accelerated slightly less than expected in early March but still hit its highest level in two years.

Among individual stocks, Walmart's Mexico unit WALMEX.MX rose 3.5% after announcing plans to invest more than $6 billion in the country this year.

HIGHLIGHTS

IMF assessing Trump's tariff plans, does not see US recession

Brazil sees trade tensions getting worse before they get better

Argentina's Milei signals 'no room' for FX devaluation

Key Latin American stock indexes and currencies: