EMERGING MARKETS-Latam assets pressured on US-China trade worries, tariff nerves

By Pranav Kashyap

May 30 (Reuters) - Latin American assets were pressured on Friday due to a rekindling of U.S.-China trade worries, while investors also grappled with another twist in the Trump administration's erratic tariff push.

"China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!," Trump wrote in a post on his Truth Social platform.

An index tracking Latin American equities .MILA00000PUS dropped 1.58%, while a similar gauge for currencies .MILA00000CUS lost 0.85%.

Adding another layer of complexity, a federal appeals court temporarily reinstated most of the tariffs that were initially blocked by the Court of International Trade late on Wednesday - amplifying the cautious tone pervading markets.

Despite the day's turbulence, a wider lens reveals a more constructive picture for Latam assets. The regional equity index was on track for its third consecutive month of gains – its most sustained advance in over three years.

The currency basket was similarly poised for a fifth straight month of appreciation, marking its longest winning streak in nearly two years.

The driver has been a notable shift in capital allocation, as investors diversified away from U.S. assets. The greenback =USD itself was facing its fifth consecutive month of declines, weighed down by concerns over Trump's capricious trade policies and a potentially deteriorating U.S. fiscal outlook that have channeled flows towards other global assets.

Mexico equity markets .MXX were on the verge of posting their longest monthly winning streak in nearly 11 years, propelled by a bumper 50 basis point rate cut from Banxico earlier this month.

Yet, as anticipation built for the nation's first-ever judicial elections on Sunday, the peso MXN= faltered on the day.

The currency is still feeling the impact of a market exodus that followed the June 2024 election of President Claudia Sheinbaum, a staunch advocate for overhauling the judiciary.

That same month was the most brutal for the peso since the COVID-19 pandemic in 2020. While Mexican stocks .MXX managed to claw back all their losses, the embattled peso has yet to stage a similar recovery.

"The full effects of the judicial overhaul ... are only likely to be felt in the medium term - potentially via weaker rule of law and lower investment," said Kimberley Sperrfechter, emerging markets economist at Capital Economics.

She noted that investors might have "already priced in the impact".

In Brazil, meanwhile, the real BRL= was facing a marginal 0.7% monthly decline, potentially snapping a two-month rally.

Brazilian stocks .BVSP were set for a third straight month of advances, their longest such streak in nearly 10 months.

This performance was largely underpinned by an inflation print for mid-May that decelerated more sharply than consensus estimates.

Furthermore, fresh GDP data indicated solid first-quarter growth, a notable achievement given domestic interest rates were parked near 20-year peaks.

The Colombian peso COP= was on track for its most substantial monthly gain since January. And the Chilean peso CLP= was set to achieve its longest monthly winning streak in 16 years.

Elsewhere, Argentine stocks .MERV were set for their strongest monthly performance this year. Investor confidence in Argentine assets has been on a steady upward trajectory, particularly after the nation secured a $20 billion loan program with the International Monetary Fund in April.

Argentina also held its first major bond sale in seven years, a $1 billion offering with payments in pesos, a clear sign that global investors are regaining their faith in a country recently mired in triple-digit inflation.