EMERGING MARKETS-Argentina leads LatAm rally after Milei's midterm win sparks investor frenzy

By Niket Nishant and Purvi Agarwal

Oct 27 (Reuters) - Argentine assets put on a stellar rally on Monday after President Javier Milei's party scored a surprise victory in midterm elections, bolstering investor confidence in sweeping economic overhaul and sustained support from Washington.

The benchmark stock index .MERV was up 21.3%, on track for its biggest one-day gain in nearly two years. The Argentine peso ARS=RASL appreciated more than 4% and was set for one of its best sessions ever.

International bonds surged, with issues maturing in 2035 and 2038 each up over 12 cents on the dollar, according to MarketAxess data.

The moves underscored 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.

"Fiscal policy is probably going to remain rather tight. You'll probably see FX policy loosen up a bit and monetary policy start to turn a little bit more accommodative," said Brendan McKenna, international economist at Wells Fargo.

Milei's win also solidifies bets that Argentina will receive U.S. support, under which the U.S. Treasury threw a potential $40 billion lifeline to the country ahead of the election despite criticism.

"If you have two very powerful backers in the U.S. Treasury and the IMF with a more predictable and encouraging policy mix, that's a pretty nice combination to have," McKenna said.

Elsewhere, Mexican President Claudia Sheinbaum and U.S. President Donald Trump agreed to extend a looming trade deadline for "a few more weeks" to discuss issues pending with Washington.

Mexico's peso MXN= extended gains and was last up 0.3%, while equities .MXX inched 1.4% higher.

Global risk appetite also was buoyed by optimism over easing U.S.-China trade tensions, after Trump said the two countries were likely to "come away with" a trade deal as he meets with the Chinese leader this week.

Colombian stocks .COLCAP rose 0.4%, on track for their fourth straight day of gains, if current levels hold. The peso COP= gained 0.7% against the dollar.

Investors have so far 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 0.4%, 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 0.3%.

Peru's Lima Stock Exchange .MXNUAMPESCPGPE was flat, while Chilean stocks .SPIPSA rose 0.3%.

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 0.3%.

International bonds in Ivory Coast inched up broadly, with some up around 1 cent on the dollar after President Alassane Ouattara secured a fourth term with a commanding reelection win, according to provisional results.

Key Latin American stock indexes and currencies: