EMERGING MARKETS-Latam currencies decline as US tariff deadline looms

By Purvi Agarwal, Ankita Yadav and Ragini Mathur

July 25 (Reuters) - Latin American currencies took a hit on Friday, with Brazil's real leading the decline as investors grew cautious ahead of impending U.S. tariffs and key central bank decisions next week.

Despite positive trade developments earlier this week, including the U.S. signing agreements with Japan, Indonesia and the Philippines, along with progress on a potential EU deal, market optimism faded ahead of the deadline for U.S. tariffs expected to take effect next week.

Brazil's government struggled to avoid punitive 50% U.S. tariffs, as high-level talks were stalled and U.S. companies were reluctant to challenge President Donald Trump on the matter, officials and industry leaders said.

Brazil's real BRL= fell 0.8% against a firmer dollar and was set for its biggest daily drop in more than two weeks.

Eduardo Ordonez Bueso, an emerging markets debt portfolio manager at BankInvest, said that the market reaction was not more pronounced as investors believed Trump could eventually reconsider his stance on Brazil.

"A lot of the Latin American companies already have some kind of operations inside the U.S., so they're a lot more insulated," Bueso added.

Brazil's domestic Bovespa index .BVSP edged down 0.2% after data showed inflation in mid-July remained above the central bank's target range, bolstering expectations that interest rates will be held steady during the bank's meeting next week.

The broader MSCI index tracking Latam currencies .MILA00000CUS fell 0.5%, though it remained poised for its second consecutive week of gains due to earlier strength.

Chile's peso CLP= slumped 1.4%, its sharpest daily drop since early April, while Peru's sol PEN= shed 0.4%, both tracking weak copper prices. U.S. tariffs on copper products are expected to take effect on August 1. MET/L

Colombia's peso COP= fell 1.7% and was set for its largest one-day drop since April 7, while Mexico's peso MXN= was flat, constrained by lower prices of oil - a top export commodity from the countries. O/R

A Reuters poll suggested Colombia's central bank could cut its benchmark interest rate next week.

Argentina's peso ARS=RASL fell 0.4%, while its stock index .MERV surged 2.9%.

Dollar-denominated bonds in the country rose broadly after the International Monetary Fund reached a staff-level agreement on the first review of its extended fund facility with the government, potentially unlocking around $2 billion in funds.

Regional equity markets showed mixed performance. Mexico's stock index .MXX gained 0.5%, Chile's IPSA index .SPIPSA rose 0.8%, while Colombia's COLCAP index .COLCAP dipped 0.1%.

The MSCI index tracking Latin American stocks .MILA00000PUS fell 0.4% but was set to end a two-week losing streak.

Key Latin American stock indexes and currencies: