EMERGING MARKETS-Latam assets wobble on reviving US-China trade, tariff worries

By Pranav Kashyap and Purvi Agarwal

May 30 (Reuters) - Latin American assets weakened on Friday after U.S. President Donald Trump's comments on China fanned worries over a rekindling trade war, while uncertainty persisted over the implementation of tariffs.

Trump said that China had violated an agreement with the U.S. to mutually roll back tariffs and trade restrictions for critical minerals, but later said he would speak to his Chinese counterpart to "hopefully" work out differences.

Investors have already been grappling with uncertainty over the tariffs after 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 in the markets.

"Nothing can be ruled out at this stage... in the current environment, investors are ready to pull the trigger on this risk rally, rush to the exits and book profits after a stunning recovery in risk assets in recent weeks," said Kathleen Brooks, research director at XTB.

An index tracking Latin American equities .MILA00000PUS dropped 1.7%, while a similar gauge for currencies .MILA00000CUS lost 0.9%.

Despite the day's turbulence, the regional equity index was on track for its third consecutive month of gains – its most sustained advance in over three years.

The currency index was poised for a fifth straight month of appreciation, marking its longest winning streak since early 2023.

The driver has been a notable shift in capital allocation, as investors diversified away from U.S. assets due to concerns over the fiscal health of the world's largest economy.

The greenback =USD itself was facing its fifth consecutive month of declines.

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 0.4% 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.

"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.

In Brazil, the real BRL= was down 0.9%, while 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.

Meanwhile, the Chilean peso CLP= was set to achieve its longest monthly winning streak in about 16 years, although it was the biggest loser on the day, down 1%.

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.

On the day, most regional bourses were battered, falling between 0.7% and 1.2%.

Elsewhere, Ukraine's finance ministry said it would not be paying more than half a billion dollars due to holders of its GDP warrants, marking the first payment default since it created the instruments.