EMERGING MARKETS-LatAm assets commence week on strong footing; Colombia rate verdict eyed

By Nikhil Sharma

Sept 29 (Reuters) - Latin American stocks jumped on Monday, with currencies also strengthening against a soft dollar amid growing risks of a U.S. government shutdown , while Colombia braced for a crucial central bank decision.

MSCI's index for Latin American currencies .MILA00000CUS rose 0.5%, leveraging a weakening dollar =USD as investors weighed the possibility of a government shutdown if Congress fails to pass a funding bill before the fiscal year ends on Tuesday.

A broader gauge for regional equities .MILA00000PUS jumped 1%, set to extend gains from the previous session.

Among Latin American countries, the Brazilian real BRL= was up 0.5% against the dollar. Stocks in Sao Paulo .BVSP jumped about 0.8% and briefly hit an all-time high.

Brazilian inflation, as measured by the General Market Price Index (IGP-M), accelerated its rise to 0.42% in September, surpassing expectations.

Brazil's central bank maintained the benchmark Selic rate at 15% at its last policy meeting — its highest level in nearly two decades — and signaled a prolonged period of the restrictive stance, citing inflationary risks.

The Colombian peso COP= rose 0.2% and stocks .COLCAP steadied ahead of the country's central bank rate setting meeting later this week.

The South American country's gaping fiscal deficit and stubbornly high inflation are likely to keep the benchmark rate frozen at 9.25% for a sixth straight month on Tuesday, despite signs of economic resilience and upbeat consumption trends.

After easing mid-year, consumer prices rebounded to 5.1% in August — well above the central bank's 3% target — clouding the outlook and forcing policymakers to stay cautious.

"This probably applies throughout LatAm, that nominal rates and real policy rates are still quite high. So there is scope for further easing. Of course, you know some central banks will want to be fairly cautious," said Jon Harrison, managing director of EM Macro Strategy at TS Lombard.

Last week, Mexico's central bank lowered its target rate a quarter-point to its lowest level since May 2022, indicating further easing as it balanced an unwieldy act of stimulating the economy against sticky inflation that threatens to breach the target rate.

Mexican equities .MXX advanced 0.4% and the local peso MXN= was steady. Data showed the country's seasonally adjusted unemployment rate was 2.6% in August, remaining unchanged from July.

Argentine assets took a breather, with the peso currency ARS=RASL and stocks .MERV moving around 0.4% lower on Monday after skyrocketing last week following Washington's unwavering pledged support and news about ongoing negotiations for a $20 billion swap line with the local central bank.

But the bigger test for markets will be next month's midterm elections, where another flop by President Javier Milei after a recent legislative setback could jeopardize progress on his austerity agenda and weigh on investor sentiment.

Elsewhere, the Bank of Israel held rates steady, opting for caution as inflation cooled further in August — but economic uncertainty looms large amid the ongoing conflict with Hamas in Gaza. The shekel ILS= jumped 0.9%, while Tel Aviv stocks .TA125 closed 0.4% lower.

Ethiopia is gearing up for formal talks with investors to restructure its $1 billion Eurobond, Bloomberg News reported on Monday — a key step in its journey out of default following a breakthrough deal with official creditors.

The country's international bond with 2025 maturity XS1151974877=TE rose about 2.5 cents to the dollar.

Key Latin American stock indexes and currencies: