EMERGING MARKETS-LatAm assets slip as investors assess Fed outlook; Argentine markets tumble

By Pranav Kashyap and Nikhil Sharma

Sept 18 (Reuters) - Latin American assets came under pressure on Thursday, as the U.S. Federal Reserve's measured policy guidance failed to lift investor sentiment, while Argentina's markets crumbled amid a pessimistic political and financial landscape.

An index tracking regional currencies .MILA00000CUS dipped 0.1%, pressured by the strengthening dollar =USD a day after the Fed delivered an expected quarter-point interest rate cut.

The central bank indicated it would steadily lower borrowing costs for the rest of this year. Chair Jerome Powell termed Wednesday's move as a risk-management cut, adding that he does not feel the need to move quickly on rates.

"The message is that some members from the Fed Board remain skeptical about the case for further easing and that has put a lid on the currency performance in LatAm today," said Andres Abadia, chief LatAm economist at Pantheon Macroeconomics.

Brazil's real <BRL=> and stock .BVSP traded with caution. The Brazilian central bank left interest rates unchanged at 15%, the highest since July 2006, and signaled several such pauses until inflation moves closer to its target.

Annual inflation hit 5.13% in August, well above the central bank's 3% target with a tolerance band of 1.5 percentage points in either direction.

While the decision obliterated hopes for easing this year, Brazilian Treasury sees inflation converging to the targets that open doors in 2026.

With Brazil holding rates steady and the Fed easing, the widening yield differential between the two economies is setting the stage for carry trades and capital inflows into Brazil's higher-yielding assets, a dynamic that could continue to bolster the real.

Latin American stocks .MILA00000PUS lost 0.44%, coming off their highest level in more than one year.

Argentina markets crashed across the board. Buenos Aires stocks .MERV plunged 5.4% to hit a near one-year low, taking their monthly losses to about 15% so far - among the worst in LatAm.

The Argentine peso ARS=RASL remained stable, but near record low, under the central bank's watch a day after it intervened in the currency market for the first time since April, selling $53 million from reserves after the peso weakened past the floor of its trading band on Wednesday.

The currency has been under immense pressure as investors rush to convert holdings into dollars amid growing opposition to President Javier Milei's agenda in Congress ahead of next month's congressional elections.

"If he will continue to struggle in October, all the structural reforms that he planned probably won't see light and that basically spells trouble for the Argentina economy," Abadia added.

Argentina's international bonds tanked, with 2038 note US040114HU71=TE down over six cents to the dollar, highlighting concerns about the country's ability to meet upcoming debt obligations.

Milei's waning influence was exposed in recent provincial elections, where opposition Peronists scored a decisive win, triggering a sharp selloff that has yet to cool.

While the libertarian leader's "chainsaw" economics has made progress in crushing inflation, boosting market confidence, and reviving growth, it has also hurt public-sector pensions, incomes and infrastructure projects.

Argentina posted a primary fiscal surplus of 1.56 trillion pesos ($1.154 billion) in August.

In South Africa, the central bank stood firm on interest rates, holding borrowing costs at 7%. The rand ZAR= was last up 0.25%.

Elsewhere in Latam, Mexican stocks .MXX slipped 0.3% and the local peso MXN= lost 0.2%. Colombia's benchmark index .COLCAP fell 0.4% and peso COP= slid 0.64%.

Chilean markets were closed for a public holiday.

Key Latin American stock indexes and currencies: