EMERGING MARKETS-Latam FX advances as dollar falls; investors weigh trade tensions

By Pranav Kashyap and Johann M Cherian

April 16 (Reuters) - Currencies of most resources-rich Latin American countries swung higher against a globally weakening dollar on Wednesday, as investors assessed trade war risks and any developments on the tariff front.

U.S.-China trade tensions are on the road to reaching a boiling point. In the latest flashpoint in the economic duel between the globe's largest economies, the U.S. Commerce Department decided to impose new restrictions on semiconductor exports to China.

The tariff tussle, fueled by the unpredictability of U.S. President Donald Trump's policy pivots, has traders on edge, worried about the ripple effects on global economic growth.

Resources-rich Latin American economies are dependent on export revenue of commodities such as crude oil, iron ore and copper, the demand for which could take a hit in the event of a global recession.

"The big question is China. It's going to be about how we deescalate and what the end game looks like. It'll be difficult for emerging markets to catch the beat and start out-performing on sustained matter until we have that certainty with China," said Lilian Chovin, head of asset allocation at Coutts.

The World Trade Organization slashed its global merchandise trade forecast, warning further U.S. tariffs could trigger the biggest slump since the height of the COVID pandemic.

A broader regional stock gauge .MILA00000PUS reversed early gains to fall 0.3%.

Mexico's peso MXN= firmed 0.7%, while the local stock index .MXX added 0.5%. The country's President Claudia Sheinbaum said that she had sent a diplomatic memo to the United States about security collaboration at the two countries' shared border.

The country's assets have outperformed their regional peers on a monthly basis, with analysts pointing out that Sheinbaum's continued negotiating stance with U.S. President Donald Trump has helped bolster investor confidence.

Traders will also monitor the outcome of a meeting of Japanese and U.S. trade officials, that Trump said he will be part of. A report also suggested that China was open to talks if Washington showed respect and named a point person.

Brazil's real BRL= advanced 0.3%, while local stocks .BVSP dropped 0.6%. Late Tuesday, the government projected a sharp rise in gross debt, clouding an otherwise optimistic outlook for an improving primary balance.

Concerns of an economic slowdown linger, exacerbated by a central bank that has kept interest rates elevated to tame inflation pressures, stoked by increased government spending.

Currencies of copper exporters Chile CLP= and Peru PEN= advanced 0.4% and 0.5%, respectively, while crude producer Colombia's peso COP= firmed 1% tracking higher crude oil prices as a report said Iraq will cut oil production in April.

Copper producers Chile, Peru, and Canada made their case to the Trump administration, arguing that their metal exports pose no threat to U.S. security interests and should be exempt from potential tariffs

Argentina's peso ARS=RASL rose 7% against the dollar. On Tuesday, the central bank loosened restrictions on the foreign exchange market for non-residents, aiming to draw a fresh wave of investment into the nation's assets.

On Monday, the central bank in a foreign exchange overhaul, relaxed its grip on the peso, allowing it to float freely within a gradually expanding band between 1,000-1,400 pesos per dollar.

Argentina's benchmark Merval index .MERV fell 4.5%.

Key Latin American stock indexes and currencies: