EMERGING MARKETS-Latam FX at record high, stocks soar after cooler US inflation buoys sentiment

By Pranav Kashyap, Sukriti Gupta and Purvi Agarwal

Aug 12 (Reuters) - A gauge of Latin American currencies reached a record high, while stocks hit a five-week high on Tuesday after an inflation reading in the United States reinforced expectations for the Federal Reserve to cut interest rates.

The dollar index =USD fell 0.4% after U.S. consumer prices increased moderately in July, supporting the case for a Federal Reserve interest-rate cut next month.

An index tracking Latin American currencies .MILA00000CUS rose 0.9%, while a similar gauge for stocks .MILA00000PUS jumped 2.1%, on track for its biggest one-day jump in nearly three months.

Rising expectations of a U.S. rate cut, following a weak jobs report and speculation over potential changes to the Fed's board, triggered a swift repricing last week that has bolstered emerging markets.

"We're seeing U.S. indices move higher as markets sort of shrug off some of the costs and distortions of tariffs and Latam is part of the story here," said Rachel Ziemba, founder of Ziemba Insights.

Chile's peso CLP= rose 1.5% on Tuesday, outperforming peers and reaching its highest level in over two weeks, supported by rising copper prices. MET/L

The currency was poised for its strongest session since late April.

Chilean stocks .SPIPSA were flat after hitting a record high in last session.

Brazil's real BRL= jumped 1% to its highest level in nearly a year, while local equities .BVSP surged 1.7% to their highest since July 9.

Brazil's July inflation came in below forecasts, as cheaper food provided monthly relief, though the annual inflation rate remained well above the central bank's target.

The country's central bank paused its rate-hike cycle in late July, keeping interest rates near a two-decade high of about 15% to combat inflation, while complications arose from U.S. President Donald Trump's 50% tariffs.

"We've been seeing Brazilian markets shrug off the tariff threat ... the central bank is likely to stay cautious in the near term, just given some of the macro uncertainties," said Ziemba.

However, a BofA Global Research survey revealed a drop in confidence among participants, with the proportion expecting Brazil's main index to surpass the 140,000 mark by year-end halving in August compared to July, as tariffs weighed on sentiment toward Brazilian assets.

On a broader front, investors cheered another 90-day extension of the tariff truce between the U.S. and China, which postponed triple-digit duties on Chinese exports to the United States.

Colombia executed a $2.96 billion bond buyback, cutting interest outlays by about $28 million this year and $135 million in 2026. Stocks in Bogota .COLCAP rose 0.6%, while the peso COP= gained 0.5%, marking its ninth consecutive session of gains.

Mexico's peso MXN= advanced 0.4%, while stocks .MXX ticked up 0.6%. Grupo Mexico GMEXICOB.MX, heavyweight copper miner, rose 4.3%, boosting equities.

Stocks in Buenos Aires .MERV rose 0.3%, while the Argentine peso ARS= gained 0.3%.

Elsewhere, international bonds in Ukraine reversed earlier gains, with those maturing in 2036 US903724CC46=TE falling 1.5 cents on the dollar.

Key Latin American stock indexes and currencies: