EMERGING MARKETS-Latam FX hits record high amid Iran-Israel tensions

By Nikhil Sharma and Shashwat Chauhan

June 16 (Reuters) - Latin American currencies hit a record high on Monday while equities were mixed as investors took stock of the simmering geopolitical tensions between Iran and Israel, kicking off a week packed with interest rate decisions around the world.

The MSCI's index for Latin American currencies .MILA00000CUS climbed 0.9% to an all-time high, crossing above levels last seen in 2011.

"We advocate buying the dips, anticipating a de-escalation of geopolitical risk, and that LatAm FX will benefit from the encouraging idiosyncratic dynamics, improved U.S. financial conditions, elevated commodity prices and a favourable geostrategic position," Bertrand Delgado, director at Societe Generale, said in a note.

Meanwhile, MSCI's index for Latam stocks .MILA00000PUS, a gauge for the regional equities, shot up 1.5%, with Brazil's local benchmark .BVSP up 1.7%. Bourses in Mexico .MXX, Chile .SPIPSA and Colombia .COLCAP traded lower.

A global risk-on rally ensued after sources told Reuters that Tehran had asked Qatar, Saudi Arabia and Oman to press U.S. President Donald Trump to use his influence on Israeli Prime Minister Benjamin Netanyahu and push for an immediate ceasefire.

In return, Iran would show flexibility in nuclear negotiations, said the two Iranian and three regional sources.

Markets showed a surprising resilience against the raging tensions, with MSCI's index tracking Israeli stocks .MIIL00000PUS up 4.2%. The local benchmark .TA125 had closed 2.6% higher.

The Israeli shekel ILS= strengthened 3.4% against the dollar, reversing most losses made last week, while international dollar bonds across the Middle East region were steady for the day.

However, tensions were still high as an Israeli strike hit Iran's state broadcaster on Monday, while the head of the U.N. nuclear watchdog indicated extensive damage to Iran's biggest uranium enrichment plant.

Iran's currency dropped at least 10% in value against the dollar since the start of Israel's offensive on Friday, according to foreign exchange website alanchand.com.

The U.S. dollar =USD came under pressure, down 0.1% in volatile trading, as investors monitored the Middle East conflict and braced for the U.S. Federal Reserve's rate decision on Wednesday, expected to keep rates on hold.

The Central Bank of Brazil's rate verdict is also due on Wednesday, with market expectations pointing to an unchanged benchmark interest rate of 14.75%, the highest level in nearly 20 years.

But Monday's fresh data highlighting a stronger-than-expected economic activity in April kept some room for a rate hike on Wednesday.

Brazilian real BRL= jumped 1% against the dollar to a more than eight-month high, while Mexico's peso MXN= advanced 0.2%.

Additionally, a "hold" decision is also widely expected from Chile's central bank later this week. The Andean nation's peso CLP= was last trading flat at 935 per dollar.

Investors were expecting a meeting between President Claudia Sheinbaum and U.S. President Donald Trump at the G7 summit in Canada to ameliorate strained trade ties following Washington's unpredictable tariff action.

Later this week, Colombia's government will present a tax reform bill to Congress to raise 19 trillion pesos ($4.53 billion) more to help fund the 2026 budget, as per government sources.

Latin American currencies are some of the best performing ones among emerging markets this year, with analysts citing attractive valuations, a globally weakening dollar and less-than-fearful impact from Trump's tariffs as leading catalysts.

Elsewhere in emerging markets, Ghana's international bonds were slightly higher after ratings agency Fitch upgraded the gold producing nation's ratings to "B-" from "restricted default", saying the country has normalized relations with a significant majority of its external commercial creditors.

Markets in Argentina were closed for a public holiday.

HIGHLIGHTS

Peru's GDP rose 1.4% in April vs a year earlier

*Pakistan holds key rate at 11% as geopolitical tensions stoke inflation risks

Key Latin American stock indexes and currencies: