EMERGING MARKETS-Latam assets fall on risk aversion after Israel-Iran tensions explode

By Nikhil Sharma

June 13 (Reuters) - Emerging market assets came under pressure on Friday, mirroring a risk-averse sentiment in global markets following Israeli strikes on Iran's nuclear facilities and missile factories, sparking promises of retaliation from Tehran.

An index tracking regional equities .MILA00000PUS slipped 0.75%, in conjunction with Wall Street, where the benchmark S&P 500 index .SPX declined by 1%.

A specter of uncertainty loomed over the Middle East after Israel launched a military strike at a wide range of military targets in Iran to deter it from building an atomic weapon.

Israel's international bonds came under pressure. Its issuance with 2054 US46514BRM18=TE and 2120 US46513JB593=TE maturities fell more than 1.5 cents to the dollar.

Escalating geopolitical tensions prompted investors to seek shelter in safe-haven assets such as the U.S. dollar. The greenback =USD firmed 0.6%.

MSCI's index for Latin American currencies .MILA00000CUS dipped 0.1%, but was still hovering near a record high. The index was on pace for its second straight weekly gain, up 1.1%.

Deteriorating supply concerns in the Middle East helped push up oil prices by 7%.

Joan Domene, senior economist at Oxford Economics, said the moves in Latam were mainly driven by the decreasing risk appetite in markets, but concluded that losses were restrained by a jump in commodity prices.

Brazilian real BRL= edged down 0.2% against the dollar, on pace to clock modest weekly losses. Investors have been monitoring the country's push for a new fiscal package, aimed at lifting tax revenues to restore fiscal balance.

The measures come against the backdrop of leftist President Luiz Inacio Lula da Silva's declining popularity, with his approval rating dropping to 28% in June.

Focus also shifted to Brazil's central bank interest rate decision next week, with economists widely a 'hold' verdict from the central bank.

Sao Paulo's main stock index .BVSP slipped 0.4%, but was headed for its first weekly advance in four.

Chile's peso CLP= and its main stock index .SPIPSA were down 0.7%, each, ahead of next week's monetary policy decision.

In Colombia, the peso COP= rose 0.3% on higher oil prices, was up 0.6% for the week despite simmering concerns about the country's deteriorating public finances.

To help fund the 2026 budget, the government will present a tax reform bill to Congress on July 20 to raise an additional 19 trillion pesos ($4.53 billion).

Mexican peso MXN= lost 0.6% against the greenback, though it was on track to end the week slightly higher.

The week's data revealed elevated inflationary pressures in Latin America's second-largest economy, obstructing its central bank's path to lower interest rates.

Banxico's Deputy Governor Jonathan Heath told Reuters that lowering rates by 50 basis points must be avoided until inflation resumes a clear downward trend.

Mexico's local equity index .MXX fell 0.8% and was eyeing a weekly loss.

Peruvian currency, sol PEN= was flat for the day following its central bank's widely expected decision on Thursday to keep rates on hold.

In Buenos Aires, the main stock index .MERV fell 0.3%. The index outperformed its local peers by rising 1.4% for the week.

Thursday's data revealed inflation tumbling to its lowest level in more than five years in May, further adding confidence in the economy, days after Argentina's central bank launched a broad package of economic measures to boost reserves, including a $2 billion repurchase agreement.

Highlights:

Brazil services activity grows 0.2% in April (Read more)

Former Bolsonaro aide to face questioning, arrest order suspended, media reports (Read more)

Expenses portion of Brazil fiscal package to save government $2.7 billion through next year (Read more)

Key Latin American stock indexes and currencies: