EMERGING MARKETS-Latam stocks, FX head for biggest daily drop since COVID pandemic as China hits back

By Johann M Cherian

April 4 (Reuters) - Indices tracking Latin American stocks and currencies tumbled on Friday, setting them on track for their biggest one-day drop in five years as investors were worried that an escalating trade war could tip the global economy into a recession.

China announced additional tariffs of 34% on U.S. goods, days after U.S. President Donald Trump launched his trade onslaught on the world, with imports from Beijing slapped with the highest of duties.

MSCI's index tracking equities in the region .MILA00000CPUS tanking 6.7%, setting it on route for its biggest daily drop since the market selloff during the COVID pandemic. The day's declines also put the index on track for weekly declines of over 4%.

Most economies in the region are major commodities exporters and a slump in prices of crude oil and base metals weighed on their currencies and on shares of resources companies, as investors priced-in the increasing likelihood of a global economic slowdown

"China is the main market for Latin American commodities... so if China and the U.S. get into a trade war and both economies lose economic performance, then we have the two main markets in the war and that is going to hit global demand," said Alfredo Coutino, director for Latin America at Moody's Analytics.

Investors got a brief relief in the previous two sessions after the region was spared from the worst of Trump's latest tariff plans.

On Friday, major energy companies in the region such as Brazil-based Petrobras PETR4.SA tanked 4.8%, Colombia's Ecopetrol ECO.CN slid 6.5% and Argentina's YPF YPFDm.BA lost 12.2%.

Mining giant Vale VALE3.SA slid 4.4%, which also weighed on the Brazil's benchmark index .BVSP that lost 2.9%.

Main indexes in Mexico .MXX, Colombia .COLCAP, Chile .SPIPSA and Peru .SPIPSA slid about 2%-3% each, while Argentina's Merval .MERV tumbled 10.3%.

On the currencies front, MSCI's gauge .MILA00000CUS weakened 3.3% against the dollar after touching a 10-month high in the previous session. The index was also on track for its biggest one-day drop since March 2020.

Mexico's peso MXN= depreciated 2.9% to trade at 20.47, dropping after the currency hit its strongest level since November in the previous session.

Currencies of copper exporters Chile CLP= and Peru PEN= depreciated 3.1% and 0.7% respectively, as prices of the red metal tanked to an eight-month low on worries that an economic slowdown could dampen demand for the industrial metal.

Brazil's real BRL= depreciated 3%. China's retaliation is poised to accelerate Beijing's move towards alternative suppliers for agriculture goods including Brazil, similar to the Trump's trade war with China during his firs term.

Oil exporter Colombia's peso COP= declined 3%. Also exacerbating worries about domestic fiscal issues, Astrid Martinez, president of the autonomous committee on fiscal rule said Colombia needs an additional adjustment in the 2025 budget to meet the fiscal rule.

Ecuador's international dollar bonds XS2214237807=TE, XS2214238441=TE, XS2214239175=TE fell over 1 cents on the dollar each.

Elsewhere, an index tracking central and eastern Europe equities .MIME00000PUS slid 8% and was on track for the biggest one-week drop since March 2022, with those in more open markets such as Czech Republic .PX and Hungary .BUX falling 5.3% and 5%, respectively.

Key Latin American stock indexes and currencies at 1439 GMT: