EMERGING MARKETS-Argentine stocks lead Latin American rally, peso retreats

By Niket Nishant and Purvi Agarwal

Oct 28 (Reuters) - Argentine stocks extended gains on Tuesday, leading a broader rally across Latin American markets, while the local peso pulled back as some investors began to look beyond the initial wave of optimism over President Javier Milei's midterm election victory.

Stocks .MERV hit their highest level since mid-January, last up 6.2%, after recording their strongest session in nearly two years on Monday. Argentina's peso ARS=RASL eased 2.9%, following one of its biggest one-day jumps in the previous session.

Argentina has become one of Latin America's most closely watched markets in recent months, as investors look to capture opportunities emerging from its volatile rebound. That makes the coming sessions critical in gauging whether market confidence in Milei's sweeping economic reforms can be sustained.

"It's easy to get excited by these results and over celebrate in the short run... Argentina doesn't have access to the market which is fundamental for their economy, but they are in a strong position now to try to deliver more economic stability," said Ernesto Revilla, chief economist for Latin America at Citigroup.

Analysts at Wells Fargo and Citigroup have warned that the outlook for the peso remains challenging, noting its trajectory is likely to prove more difficult than that of equities.

"We'll need to move to a more flexible monetary policy to accumulate reserves and that means there is going to be a trend for the Argentinian peso to continue depreciating in a controlled way," said Revilla.

Some of Argentina's international bonds were higher, with issues maturing in 2029 and 2035 up 1.28 cents and 1.26 cents on the dollar, according to MarketAxess data.

BRAZIL HIGHER, MEXICO LEADS

Brazilian stocks .BVSP gained 0.3% as a strong jump in shares of food producer MBRF MBRF3.SA helped offset some profit-taking.

MBRF signed an investment deal with Saudi Arabia's Halal Products Development Company on Monday to boost their joint venture in the Middle East.

The real BRL= gained 0.3%, bucking the broader trend.

Mexico's benchmark S&P/BMV IPC stock index .MXX rose 1.6%, with cement maker Cemex CEMEXCPO.MX up 9.5% after a 19% jump in third-quarter core earnings. The peso MXN= was down 0.2%.

Both countries have held tariff negotiations with Washington in recent days.

In Chile, the benchmark index .SPIPSA crept 0.3% higher ahead of a monetary policy decision. Peru's stocks .MXNUAMPESCPGPE rose 1.6%, helped by a global risk-on sentiment on hopes that the U.S. and China may be close to a trade deal.

Overall, an MSCI index tracking Latin American equities .MILA00000PUS rose 0.8% to its highest in nearly four weeks. A gauge of regional currencies .MILA00000CUS was on track for a fourth session of gains.

Some of Jamaica's dollar-denominated bonds were also under scrutiny as the country braced for Category 5 Hurricane Melissa.

Issues due in 2039 and 2045 were down more than 1 cent on the dollar.

The focus is now on the U.S. Federal Reserve's meeting on Wednesday for any clues on its monetary policy path, which can shape the interest rate trajectory in LatAm economies as well.

Key Latin American stock indexes and currencies: