EMERGING MARKETS-LatAm assets eye weekly gains; Argentina markets struggle due to political turmoil

By Pranav Kashyap and Nikhil Sharma

Sept 19 (Reuters) - Latin American assets were mixed on Friday but were poised for solid weekly gains, whereas Argentina's markets continued to struggle with the local peso holding steady under the central bank's oversight.

A sharp selloff engulfed the Argentine market this week, with stocks .MERV sliding more than 4% - their fifth weekly loss in six - and the peso ARS=RASL down 1.48%, headed for a fifth straight weekly decline.

The peso was flat at a record low, while stocks slipped 0.45% on Friday.

Pressured by a weakening currency, Argentina's central bank sold $678 million in the wholesale market on Friday, marking its largest daily dollar sale since October 2019.

The week marked the first time the central bank intervened in the currency market since mid-April, having now offloaded $1.1 billion in the last three days to curb strong dollar demand from institutional investors wary of political instability.

Markets have been under strain ever since the recent legislative setback for President Javier Milei, casting doubts over the viability of his austerity agenda as the October midterm elections approach.

"If reserves are being used to defend the effects, it's limited and you start to see correlations in all asset classes," said Alejandro Cuadrado, managing director, global head FX & LatAm strategy at BBVA.

"What's at stake is the midterms and at some point there has been an excess of expectations in the performance capacity of the administration into those elections."

Traders said Argentina's parallel market peso ARSB= weakened 0.66% to a record low of 1,520 per dollar, bringing its weekly depreciation to 6.25%.

Meanwhile, an index for Latin American equities .MILA00000PUS was on track for a seventh straight weekly gain, the longest run since November 2020, aided by gains in the run-up to the Federal Reserve rate decision.

A broader currencies gauge .MILA00000CUS was up 0.83% for the week, having lost steam following an unexpected jump in the U.S. dollar after the Federal Reserve delivered a quarter-point interest rate cut this week.

Even as the Fed reduced rates for the first time since December, its policy outlook remained less dovish than expected, pointing to a measured pace of future cuts and a lack of urgency to launch a full-blown easing cycle.

The LatAm equity index added 0.25% and the currency index was down 0.26% on Friday.

Brazil's real BRL= dipped about 0.1%, taking its weekly advances to 0.66% so far - its third straight week of gains. The central bank this week left borrowing costs unchanged at a near 20-year high and indicated a prolonged period until inflation converges to its target.

Brazilian stocks .BVSP rose 0.35% on the day - looking at a weekly advance of over 2.6%.

Mexican stocks gained 0.4%, while the peso was down 0.2%. Fresh data showed the country's private spending increased 1.2% in the second quarter.

International Monetary Fund sees the country's growth slowing in 2025 before inching up in 2026, citing the need for fiscal and structural reforms.

Mexico's central bank will announce its policy decision next week. Markets are expecting a quarter-point cut that would take the benchmark rate to 7.50%.

Peruvian stocks .MXNUAMPESCPGPE recovered 1.5% after logging their worst single-day drop in over five months on Thursday, as approval of a measure allowing partial withdrawals from private pensions sparked fears that millions could be left without retirement savings.

Peru's central bank slightly raised its economic growth forecast on Friday, citing stronger-than-expected non-primary sector activity and private spending.

Local currency sol PEN= fell 0.5%.

Colombian stocks .COLCAP rose 1.34%, gaining for the first time after three sessions of losses. Its currency peso COP= jumped 0.54% and was set for its eighth consecutive weekly rise.

Key Latin American stock indexes and currencies: