EMERGING MARKETS-LatAm assets set for modest gains in volatile month; Argentine stocks outperform

By Niket Nishant and Purvi Agarwal

Oct 31 (Reuters) - Latin American stocks and currencies were set to eke out slim monthly gains on Friday as post-election optimism in Argentina faded and progress on U.S.-China trade talks tempered concerns over tariff tensions.

MSCI's index tracking regional stocks .MILA00000PUS was up 0.2%, while an equivalent currencies gauge .MILA00000CUS was little changed. They were poised to end October with gains of 0.9% and 0.2%, respectively, following three straight weeks of gains.

While long-term tailwinds, such as investor demand for diversification, have improved the region's prospects, October's price swings underscored Latin America's sensitivity to global economic shifts.

BRAZILIAN STOCKS GAIN, MEXICAN FX COOLS

In Brazil, the Bovespa .BVSP index climbed 0.5% and was on track for its third straight monthly gain. Data showed the country ended the third quarter with an unemployment rate of 5.6%, the lowest in history.

Investors also took heart from a slew of earnings reports, including from metal and mining company Vale VALE3.SA, whose shares rose 2%.

Still, problems at Brazil's Braskem BRKM5.SA raised concerns about the health of the petrochemical industry. J.P. Morgan, meanwhile, raised its 2025 forecast for defaults on emerging-market high-yield corporate bonds.

Colombia's peso COP= was little changed after its central bank held rates at 9.25%, as expected. However, there were three dissents in the seven-member board. Colombian stocks .COLCAP declined 0.5%.

Argentine stocks .MERV soared 8%, on track for their best monthly performance since August 1991 and their second-best on record. The peso ARS=RASL, however, weakened 0.5%.

"It's unclear what's going to happen with the peso. But the government will have the ammunition required to address this overvaluation without a strong pass-through to inflation," said Mauricio Monge, senior economist at Oxford Economics.

In contrast, FX analysts at Citigroup said Argentina's real exchange rate was less overvalued "than generally perceived by the market" and depreciation in 2026 could be mild.

"With political risk premia now collapsing, we expect interest rates to fall steeply," they said.

The country is planning to marginally loosen the share of reserve requirements that commercial banks must report daily, aiming to revive lending and boost liquidity, Bloomberg News reported on Thursday, citing a person familiar with the matter.

Mexican equities .MXX fell 0.4% after hitting record highs on Wednesday, while the peso MXN= weakened against the dollar for a fourth straight day, falling 0.2%. October marks the steepest monthly fall for the currency since December.

Meanwhile, Direct production costs at Chile's large copper mines fell in the first half of the year, the state-run Chilean Copper Commission said on Thursday, marking a reversal of the upward trend of recent years.

Markets in Chile were closed for a public holiday. Chile's peso CLP= looked set for its best monthly performance since February.

Separately, Morgan Stanley wrote in a note that emerging market governments have raised $5.1 billion through bond sales this week, pushing total issuance for the year to $239.8 billion, already surpassing any previous full-year record.

Key Latin American stock indexes and currencies: