EMERGING MARKETS-Argentina leads LatAm rally after Milei's midterm triumph ignites market frenzy

By Niket Nishant

Oct 27 (Reuters) - Argentine assets rallied sharply on Monday after President Javier Milei's party scored a surprise win in the midterm elections, reinforcing bets on a sweeping economic overhaul and sustained support from Washington.

The benchmark stock index .MERV rose 19.4%, poised for its biggest intraday percentage gain in nearly two years, while the Argentine peso ARS=RASL gained 10.76% and was on pace for one of its best sessions ever.

International bonds surged, with the issues maturing in 2035 and 2038 up 14.3 cents and 13.9 cents on the dollar, respectively, according to MarketAxess data.

MORE HELP FROM THE US?

The moves signal strong investor support for Milei's libertarian reform agenda, which has included deep spending cuts and deregulation measures aimed at stabilizing the economy and curbing inflation.

"The result removes a significant political overhang on the Argentine equity market," said Patricia Urbano, emerging equities portfolio manager at Edmond de Rothschild Asset Management.

Investors will also bet on more help from the U.S., which threw a potential $40 billion lifeline to the country ahead of the election despite criticism, including from his own ranks.

"Argentina isn't a U.S. treaty ally or on any geopolitical fault line. Argentina's financial troubles aren't likely to trigger a systemic financial crisis either," said Brad Setser, a senior fellow at the Council on Foreign Relations.

"The Treasury's argument is that the United States has an interest in the success of Milei's agenda, as his commitment to the unfettered market is setting an important example for the rest of the region."

COLOMBIA STOCKS EXTEND GAINS, BRAZIL HITS RECORD

Elsewhere in the region, Colombian stocks .COLCAP rose 0.2%, on track for its fourth straight day of gains if current levels hold, and the peso COP= gained 0.6% against the dollar.

Investors so far have brushed aside fears of escalating tensions between Bogota and Washington. Last week, the U.S. imposed sanctions on Colombian President Gustavo Petro, escalating a feud with a longtime ally over accusations that he has refused to stop the flow of cocaine into the United States.

Brazil's Ibovespa index .BVSP hit an all-time high and was last up 0.7%, a day after President Luiz Inacio Lula da Silva's meeting with Trump.

Lula said Brazilian and U.S. authorities would "immediately" start discussing tariffs and other matters. The real BRL= gained 0.2%.

In Mexico, equities .MXX crept 0.5% higher while the peso MXN= gained 0.1%. Hopes of a trade deal between the U.S. and China boosted risk sentiment across geographies.

Peru's Lima Stock Exchange .MXNUAMPESCPGPE inched up 0.3%, while Chilean stocks .SPIPSA rose 0.9%.

Overall, MSCI's index tracking Latin American equities .MILA00000PUS rose 0.9% to its highest in nearly four weeks. A gauge of regional currencies .MILA00000CUS was up 0.1%.

Key Latin American stock indexes and currencies: