EMERGING MARKETS-Brazil leads LatAm FX to record highs ahead of central bank meetings

By Pranav Kashyap and Twesha Dikshit

Sept 15 (Reuters) - An index tracking Latin American currencies extended its record-setting run on Monday, led by the Brazilian real, as traders positioned for the start of the U.S. policy easing cycle later this week.

A gauge for regional currencies .MILA00000CUS climbed 0.8% to a record high, marking its fourth consecutive record-high session, buoyed by the dollar =USD, which fell 0.3% on growing confidence that the Federal Reserve will cut interest rates this week.

Markets are fully pricing in a quarter-point cut, while also holding limited expectations for a larger 50 basis point reduction, according to the CME Group's FedWatch tool.

Also in focus will be Fed members' "dot plot" projections for rates and guidance from Fed Chair Jerome Powell on the scope and pace of further easing measures.

"The focus in this meeting is going to be less on the decision and more the path forward. The dot plot will be the market's anchor," said Daniela Sabin Hathorn, senior market analyst at capital.com.

"Given how much dovishness is already priced, any median path that signals fewer cuts or a slower easing cycle in 2026 would read as hawkish."

Brazil's real BRL= gained 0.66%, surpassing its one-year peak and heading for a fourth consecutive advance.

The country's central bank is widely expected to hold borrowing costs steady on Wednesday, following July's pause after implementing 450 basis points of hikes since last September.

With borrowing costs at 15% to tackle persistent inflation, Brazil's economic growth is showing signs of strain. July activity fell more than expected, marking the third consecutive monthly decline.

Stocks in Sao Paulo .BVSP rose 0.91%, lifted by energy companies Petrobras PETR3.SA and Eletrobras ELET6.SA, which gained 1.4% and 3.2%, respectively, as crude prices advanced.

An index tracking Latin American equities .MILA00000PUS jumped 1.6% to its highest level in over a year.

The Mexican peso MXN= added 0.27%, while the local stock index .MXX climbed 0.51%. This week, Mexican officials were scheduled to meet with representatives from China to discuss planned tariffs on goods from the Asian nation.

The country launched a three-tranche bond issuance worth up to 5 billion euros ($5.88 billion) to partially fund a $9.9 billion bond buyback for state-run oil company Pemex, according to LSEG's fixed-income news service IFR.

Peruvian equities .MXNUAMPESCPGPE were 0.76% higher after data showed the economy expanded 3.41% in July, exceeding expectations.

Argentine markets failed to recover from last week's selloff following President Javier Milei's defeat in the Buenos Aires provincial election. Stocks .MERV edged down 0.36%, while the currency ARS=RASL slipped to another record low on Monday.

Fresh GDP data for the second quarter is set to be released on Wednesday and is expected to show a 6.5% year-on-year expansion following a downturn in the third quarter of 2024.

Turkey's markets surged on Monday, with Istanbul stocks .XU100 jumping 6%, their biggest one-day gain since May 2023, and the lira TRY= rebounding after a court postponed a ruling on removing the opposition party leader.

The move eased investor concerns following the earlier ousting of the party's Istanbul provincial head, which shook market sentiment.

Elsewhere, Ukraine's international dollar bonds climbed over 1 cent. A Reuters report said that one of Russia's largest oil refineries had halted a key processing unit after a Ukrainian drone strike over the weekend, as Kyiv intensified attacks on Russia's energy infrastructure.

Key Latin American stock indexes and currencies: