EMERGING MARKETS-LatAm stocks extend climb on Fed optimism; regional developments in focus

By Niket Nishant

Dec 4 (Reuters) - Latin American stocks extended gains on Thursday, driven by growing expectations that the U.S. Federal Reserve will begin lowering interest rates soon, while investors also focused on key regional developments.

MSCI's index of LatAm equities .MILA00000PUS climbed 0.9% to hit a near six-year high, on pace to extend its winning streak to a third day.

A parallel index for regional currencies .MILA00000CUS gave up early gains to trade slightly lower on the day, following an eight-day winning streak driven by elevated bets on a quarter-point U.S. rate cut next month.

Lower U.S. rates typically weaken the dollar and spur demand for higher-yielding assets, including many Latin American currencies.

Although December is usually a subdued period for markets, investors have been juggling several factors, including shifting rate-cut expectations, persistent geopolitical tensions in Ukraine despite diplomatic efforts, and a series of local political and economic developments.

In Latin America, attention is focused on an increasingly contentious presidential race in Honduras between conservative candidate Nasry Asfura, backed by U.S. President Donald Trump, and centrist rival Salvador Nasralla. Nasralla has alleged fraud in the presidential vote after Asfura pulled narrowly past him overnight.

Honduran dollar-denominated bonds were little changed on Thursday.

BRAZILIAN EQUITIES HIT RECORD HIGH

Brazil's Bovespa .BVSP rose 1.4% and surpassed 164,000 points for the first time after data showed that the economy slowed more than expected in the third quarter, boosting expectations of rate cuts early next year. The real BRL= was steady against the dollar.

"We expect the economy to slow further in 2026 and with inflation set to continue falling. We think Copom (Monetary Policy Committee of Brazil's central bank) will shift to interest rate cuts at its meeting in January," analysts at Capital Economics said in a note.

Brazil's trade surplus fell 13.4% in November from the same month last year, official data showed, landing almost in line with economists' estimates.

Meanwhile, Brazilian Congressman Gervasio Maia, sponsor of the 2026 budget guidelines bill, proposed excluding up to 10 billion reais ($1.9 billion) from next year's fiscal target for state-owned companies.

Chile's main stock index .SPIPSA was flat, while the local peso CLP= rose 0.1%. Chilean mining giant SQM SQMA.SN slipped 2.6% after raising approximately $430 million in a bond sale.

Mexican equities .MXX and the peso MXN= were up 0.1% and 0.3%, respectively. Trump could decide next year to withdraw from the United States-Mexico-Canada trade agreement, Politico reported, citing U.S. Trade Representative Jamieson Greer.

In Argentina, equities .MERV slipped 0.3%. The peso ARS=RASL rose 0.86%, while most dollar bonds were slightly higher.

Argentine officials are starting to prepare the country's return to international bond markets by the start of 2026, Bloomberg News reported on Wednesday, citing people familiar with the matter.

The International Monetary Fund said the country must adjust its monetary and exchange-rate policies to build reserves and regain access to international capital markets.

Colombian stocks .COLCAP steadied and the peso COP= was up 0.1% against the greenback.

Additionally, investors are monitoring developments in Venezuela amid aggressive rhetoric between Trump and Venezuelan President Nicolas Maduro.

U.S. pressure on Venezuela has been building, including strikes against alleged drug-smuggling boats and threats of military action.

Key Latin American stock indexes and currencies: