EMERGING MARKETS-Latam assets decline on trade tensions; Mexican peso touches 21/dollar mark

By Johann M Cherian

April 9 (Reuters) - Most Latin American assets declined on Wednesday, with Mexico's peso touching 21 against the dollar, after China and the European Union slapped new trade barriers on U.S. goods, stoking worries that an intensifying trade war could weigh on the global economy.

In a response to punitive U.S. tariffs on world economies that took effect on Wednesday, Beijing said its new round of trade restrictions is expected to take effect from Thursday, while measures by the European Union are set to take effect next week.

An index tracking currencies in Latin America .MILA00000CUS dropped 1.6%, with Mexico's peso MXN= briefly slipping 0.4% to below the psychological mark of 21 to the dollar for the first time since February.

Also weighing on the currency were increasing expectations that the Mexican central bank could further lower its benchmark interest rate by 50 basis points at its next meeting, after data showed annual inflation in March remained within the institution's target range.

Central banks globally are approaching monetary policy with trepidation as they face the dilemma of either cutting interest rates to shore up their respective economies or to support their falling currencies by leaving interest rates unchanged.

"Some of them will have to stay on the sidelines, but the central bank in Mexico will likely continue to cut rates," said Andrés Abadía, chief Latam economist at Pantheon Macroeconomics.

"Economic activity is slowing rapidly and they have obtained a relatively softer action from the U.S. administration in terms of general tariffs of 10%, so they have some room to maneuver right now."

On the equities front, MSCI's index tracking stocks in the region .MILA00000PUS dropped 1.3%, while a wider emerging market stocks index .MSCIEF declined 1%.

Both the Latin American MSCI indexes have fallen the prior three sessions and were trading close to a near three-month low as investors stayed clear of riskier assets globally.

Latin American economies have been spared from the biggest of U.S. tariffs, given that apart from Mexico they have a relatively smaller trade exposure to the U.S. However, analysts said that the slowdown of the top two economies - China and the U.S. - could also affect the region overall.

Investors were monitoring developments around possible trade negotiations between some Asian nations such as Vietnam, Thailand and Japan.

Crude prices continued to slide and were trading close to $60/barrel, which weighed on shares of top oil producers in the region. Brazil's Petrobras PETR4.SA was down 1%, Colombia's Ecopetrol ECO.CN dropped 0.6% and Argentina's YPF YPFDm.BA fell 1.9%.

Mexican stocks .MXX were flat, although Genomma Lab LABB.MX fell 1.5% as U.S. President Donald Trump threatened tariffs on the healthcare sector.

On the currencies front, Brazil's real BRL= weakened 0.8% as prices of the country's top export item, iron ore, hit a six-and-a-half-month low. The local Bovespa index .BVSP edged up 0.1%.

Data showed Brazil retail sales rose 0.5% on a monthly basis in February even as signs of heightened price pressures in the economy have resulted in the local central bank raising interest rates.

In a win for the government of Argentine President Javier Milei, the International Monetary Fund said it reached a staff-level agreement with the country on a 48-month extended fund facility totaling $20 billion.

However, the Merval stock index .MERV lost 0.3%, and hard-currency bonds 040114HV5=1M, 040114HT0=1M, AR220024407=, AR217736439= dropped more than 1 cent each on the dollar.

Colombia's peso COP= slipped 0.6%, while currencies of copper producers Chile CLP= and Peru PEN= were marginally lower.

A poll of traders showed Chile's central bank is expected to hold its benchmark interest rate at 5.0% at its next meeting in April.

Key Latin American stock indexes and currencies at 1433 GMT: