EMERGING MARKETS-LatAm sell-off persists, set for weekly fall despite easing Fed, AI fears

By Nikhil Sharma and Sukriti Gupta

Nov 21 (Reuters) - Latin American assets were heading for sharp weekly declines on Friday, as emerging markets remained risk-averse even as uncertainty over U.S. Federal Reserve policy and fears of a potential AI bubble eased.

A broader index for regional equities .MILA00000PUS fell 0.7% on the day and remained on course for its biggest weekly drop since early October, down 2.6%, reflecting subdued sentiment in emerging markets globally even as U.S. markets stabilized after a heavy sell-off in the previous session.

After an AI-led rout on Thursday, driven by concerns over a potentially overvalued tech sector despite Nvidia's NVDA.O upbeat forecast, Wall Street investors added risk on Friday, buoyed by growing bets on a December rate cut following remarks from policymakers.

The dollar index =USD was up 1% for the week, supported by uncertainty after Thursday's U.S. jobs report – delayed because of a government shutdown – painted a mixed picture of the labor market.

MSCI's index tracking Latin American currencies .MILA00000CUS fell 1.1% and was on pace for its worst week since early July.

Talking about the declines in Latam assets on the day, Rachel Ziemba, founder of Ziemba Insights, said, "Latam markets in a way are catching down to the weakness in global markets earlier in the week" with many commodity prices, including oil and metals, down as well.

The Brazilian real BRL= fell 1.3% and was set for its first weekly decline in six, with a 1.9% drop, as a fall in crude prices weighed O/R.

The local stock index .BVSP was down 0.4% on the day and 1.9% for the week, also on track for its first weekly loss in six.

Brazil's government said that 22% of its exports to the U.S. remain subject to a 40% extra tariff after U.S. President Donald Trump expanded the list of exemptions to include goods such as coffee, meat and fruit.

In Mexico, the peso MXN= fell 0.5% with data showing Latin America's second-largest economy shrank by 0.3% in the third quarter. The slowing economy has been the biggest reason behind the central bank's decision to cut rates despite ongoing concerns about core inflation.

The country's local equity index .MXX advanced 0.9%.

Separate data showed economic activity contracting 0.6% in September from the previous month. Both the stock index and the currency were heading for significant weekly losses.

Colombia's peso COP= dropped 1%. The country's COLCAP Index .COLCAP lost 0.2% after falling 1.5% on Thursday. Both assets were headed for heavy weekly losses.

Chile's peso CLP= dropped 0.9%, taking its weekly losses to 1.3%.

The Santiago stock index .SPIPSA gained 0.3%, and was up 2.3% for the week after last Sunday's presidential vote, with analysts seeing a potential victory for far-right candidate Jose Antonio Kast in a December runoff, raising hopes that a right-wing government would deliver more market-friendly reforms.

Argentina's stock market was open but banks were closed and the local peso did not trade on Friday.

Key Latin American stock indexes and currencies: