EMERGING MARKETS-Latam assets extend rally on elevated Fed cut bets; Brazil's inflation falls within target

By Twesha Dikshit, Niket Nishant and Nikhil Sharma

Nov 26 (Reuters) - Latin American assets extended their rally on Wednesday, as investors remained confident that the Federal Reserve would cut rates in December, while Brazil's annual inflation fell within the central bank's target range for the first time since January.

Emerging market assets have come under pressure in recent days, with last week's selloff mirroring global risk-off sentiment on concerns of overvalued technology stocks and uncertainty over the Fed's monetary policy.

The MSCI index tracking regional stocks .MILA00000PUS climbed 2.1% and the broader index of regional currencies .MILA00000CUS added 0.92% - both on pace for their third-straight sessions of gains.

Renewed efforts toward a Ukraine peace deal, the release of delayed official U.S. data, and dovish commentary from Fed officials have been the key catalysts behind the global market rally this week.

In Latin America, Brazil's annual inflation was within the central bank's target range in early November, according to official data, fueling expectations of an interest rate easing cycle.

The benchmark Bovespa Index .BVSP advanced 1.7% to hit an all-time high, while the real BRL= strengthened 0.82% against the dollar - on pace for its best day since October 13.

"While the relative hawkishness of COPOM's (Brazilian central bank) latest communications rule out a cut at the next meeting in December, we think that falling inflation (and expectations), the recent bout of weak activity data and the strength of the real mean that the central bank is likely to kick-off its easing cycle in January," said Capital Economics' emerging market economist Kimberley Sperrfechter in a note.

With Brazil's policy rate at its highest level since the mid-2000s, Capital Economics economists estimate the end-2026 Selic rate at 11.25% compared to the current 15%.

A separate data revealed the federal government recorded a primary budget surplus of 36.5 billion reais ($6.83 billion) in October, well below the surplus posted in the same month last year.

A Reuters poll showed expectations that Latin America's largest economy could see a winning streak for its stocks before facing volatility ahead of next year's presidential vote.

President Luiz Inacio Lula da Silva leads all potential right-wing challengers for the 2026 election, according to a poll released on Tuesday.

"Some investment market participants see relatively modest uncertainty on the political front. It is true that for some, Mr. Lula is not the most market-friendly, but for now, the way that he has handled the economy is actually good," said Andres Abadia, chief LatAm economist at Pantheon Macroeconomics.

Meanwhile, the same poll showed estimations of Mexico's IPC stock index .MXX rising 8.7% to 67,950 points at the end of 2026, on expectations of a renewal of the USMCA trade deal next year.

Mexican stocks rose 0.12%, while the peso MXN= sky-rocketed 2% - headed for its best day since April 9.

Colombia's equities .COLCAP added 0.4%, while the peso COP= strengthened 0.3% against the greenback.

Argentina's peso ARS= slipped 0.3% against the dollar, while the S&P Merval Index .MERV jumped 3.5%, a day after economic activity growth surpassed expectations for September.

Meanwhile, the International Monetary Fund reached a staff-level agreement on a new four-year, $8.2 billion programme for Ukraine as the country faces mounting wartime fiscal pressures.

Ukraine's international bonds were trading higher, having rallied in recent weeks on progress towards a peace plan to end the nearly four-year-old Russia-Ukraine war.

Elsewhere, South African assets jumped after muted U.S. economic data further boosted hopes of a Fed rate cut. The rand ZAR= advanced 0.6% against the greenback, while stocks .JTOPI gained 1.4%.

HIGHLIGHTS:

Brazil's finance minister does not expect government to challenge bill on special pension

Argentina corn crops thrive now but face drought risk in key growing period, LSEG says

Ghana central bank delivers third big rate cut as inflation tumbles

Key Latin American stock indexes and currencies: