EMERGING MARKETS-LatAm assets steady as traders brace for Fed, Brazil rate calls

By Pranav Kashyap

Sept 16 (Reuters) - Most Latin American assets held their ground on Tuesday as traders braced for twin interest rate decisions from the Fed and Brazil's central bank on Wednesday.

Argentine assets staged a modest rebound, with Buenos Aires stocks .MERV jumping nearly 3%, after three straight days of declines, while the peso ARS=RASL ticked up 0.5%, gaining for the first time in nine sessions.

President Javier Milei unveiled a 2026 budget pledging fiscal discipline — but with surprise hikes to healthcare, education, and pensions.

The proposal marks a tactical shift for Milei, whose shock therapy economics — including deep spending cuts — helped crush triple-digit inflation but also gutted public services and ignited near-daily protests in the capital.

Yet the political cost is mounting. Milei's popularity took a hit in recent provincial elections, where opposition Peronists scored a decisive win, triggering a sharp selloff in Argentine assets and raising questions about the durability of his libertarian experiment.

A cooling U.S. labor market has turbocharged bets on Federal Reserve rate cuts, knocking the dollar lower and reigniting demand for emerging market currencies.

With a 25-basis-point cut all but priced in for Wednesday, traders are zeroed in on the Fed's dot plot and any dovish signals from Chair Jerome Powell that could set the tone for further easing.

An index tracking the region's currencies .MILA00000CUS and a similar index for equities MILA00000PUS rose 0.1% each.

Brazil's central bank also kicks off a two-day policy meeting, with markets betting it will hold borrowing costs at a near 20-year high. But the decision comes at a delicate moment — the 15% Selic rate may be cooling inflation, yet fresh data shows it's starting to bite into growth, putting policymakers in a tightening trap.

The real BRL= held its ground after gaining for four consecutive sessions, while Brazilian stocks .BVSP rose 0.5%.

With the Fed poised to cut rates and Brazil's central bank holding firm, the widening yield gap could set the stage for a bullish run on the real. As the dollar weakens, Brazil's near two-decade-high interest rates could draw carry trade flows, boosting demand for the currency and reinforcing its out-performance among emerging market peers.

Brazil's finance minister said interest rate cuts could begin in the coming months. Still, analysts note that even if Brazil resumes its easing cycle, the real would remain an attractive carry.

"We expect EM FX to be supported by more front-loaded rate cuts from the Fed and continued de-dollarisation," said Burak Baskurt, global head of EM strategy at BNP Paribas.

"High-yielding currencies are likely to remain supported, we think Brazil's real and the Hungarian forint are particularly attractive and prefer to stay long the real and forint."

The Hungarian forint HUF= has outperformed its regional peers this year, backed by one of the highest interest rates in Europe.

All other Latin American currencies were trading marginally higher against the dollar, broadly in-line with the rest of emerging markets.

Elsewhere, the Zambian kwacha EURZMW= jumped 1% to a two-week high against the euro, after the International Monetary Fund's executive board has approved a three-month extension of the country's loan programme.

Key Latin American stock indexes and currencies: