EMERGING MARKETS-Brazilian real jumps following rate hike; US-UK deal spurs global sentiment

By Pranav Kashyap

May 8 (Reuters) - Brazil's currency jumped on Thursday following an overnight interest rate hike by its central bank, while U.S. President Donald Trump's fresh trade agreement with Britain to lower tariffs relieved global markets.

Brazil's real BRL= was among the best-performing currencies for the day, gaining 1.3%, while the local benchmark index .BVSP hit an all-time high and was last trading at 2.6%.

On Wednesday, Brazil's central bank raised interest rates by 50 basis points, which took borrowing costs to their highest in nearly 20 years.

Policymakers stressed that the current environment calls for a "significantly contractionary monetary policy for a prolonged period," to rein in inflation looming well above the central bank's 3% target.

"They did leave the door open for more tightening ... We still expect one more increase of 25 basis points," said Olga Yangol, head of EM research and strategy at Credit Agricole, suggesting that inflation "continues to be problematic in Brazil."

Meanwhile, investors greeted a trade deal between U.S. President Donald Trump and British Prime Minister Keir Starmer on Thursday.

This is the first deal over tariffs since Trump unleashed his higher levies on key trading partners, creating an environment of higher uncertainty in global markets.

The U.S.-Britain deal precedes planned talks between U.S. and Chinese officials in Switzerland during the weekend, as the world's top two economies take the first step to pacify their detrimental trade tensions.

"It seems that Trump's administration is taking more of a conciliatory approach after we've had a negative reaction in the markets and the economy in the first quarter," Credit Agricole's Yangol added.

MSCI's gauge for Latin American currencies .MILA00000CUS rose 1% on the day and was up 12% for the year so far. Local countries have largely avoided extreme selling pressure in 2025 due to relatively lower U.S. tariffs on South American countries.

Additionally, an ongoing global trade conflict has also put into question the idea of U.S. exceptionalism, with investors attempting to diversify away from U.S. assets amid concerns about its slowing economy.

In Mexico, the peso MXN= gained 0.24% after fresh data showed the country's annual inflation rate matched market expectations in April, accelerating from the previous month but still within the central bank's target range. The top bank will release its monetary policy decision next week.

The local bourse .MXX was down 1.5%, dragged by a 3.7% fall in lender Banorte GFNORTEO.MX and a 1.5% decline in bottler FEMSA FEMSAUBD.MX.

In Chile, consumer prices rose 0.2% in April from the previous month, slightly below the 0.3% increase expected by economists in a Reuters poll. The Chilean peso CLP= soared 1.1%.

A gauge for regional equities .MILA00000PUS jumped 2.1% to a seven-month high.

Elsewhere, Romania's leu EURRON= continued to hover near record lows, while the country's 10-year bond yields RO10YT=RR rose to their highest levels since late-2022 after hard-right presidential candidate George Simion took the lead in Sunday's first-round vote.

The Indian rupee INR= fell 1%, logging its biggest single-day drop in over 2-1/2 years, while Pakistan's benchmark index .KSE recorded its largest single-day drop in over five years.

The markets came under pressure after the Indian government said it had "neutralised" attempts by Pakistan to "engage" several military targets. Pakistan, meanwhile, said it had shot down 25 drones from India in its airspace.

New Delhi's missile strikes on Pakistan and Pakistani Kashmir on Wednesday marked the worst confrontation between the nuclear-armed neighbors in over two decades.

Key Latin American stock indexes and currencies: