EMERGING MARKETS-Latam assets steady, Brazil markets under pressure following Flavio Bolsonaro's 2026 bid

By Niket Nishant and Nikhil Sharma

Dec 9 (Reuters) - Latin American assets steadied after early losses on Tuesday, while Brazilian markets remained volatile after Senator Flavio Bolsonaro, the eldest son of former President Jair Bolsonaro, declared his 2026 presidential bid "irreversible."

Brazil's benchmark Bovespa index .BVSP was down 0.24% after hitting a two-week low earlier in the session, while the real BRL= lost 0.22% after hitting a near two-month low.

Investors had expected Jair Bolsonaro to rally behind a more seasoned, market-friendly candidate such as Sao Paulo Governor Tarcisio de Freitas.

Tarcisio pledged his support to Flavio Bolsonaro on Monday.

"It's still a very open race, but we have to say that if there's a favorite, then it's President Lula da Silva. So markets perhaps are adjusting to that. So sold off perhaps on the news and recovered," said Jon Harrison, managing director of EM Macro Strategy at TS Lombard.

The market's moves suggest political risk is re-emerging as a key driver for Latin American assets, after a stretch when Federal Reserve policy and other macroeconomic factors dominated headlines. This may signal rougher waters ahead as regional elections approach next year.

Reversing early losses, MSCI's index of Latin American stocks .MILA00000PUS rose 0.2%, while the currencies gauge .MILA00000CUS added 0.1%. The moves mirrored global market sentiment as investors turned their attention to the U.S. Federal Reserve's two-day policy meeting beginning on Tuesday.

Meanwhile, Brazil's central bank is widely expected to hold interest rates steady when it announces its decision on Wednesday.

In Mexico, the stock benchmark .MXX rose 0.8% and the local peso MXN= edged 0.4% higher.

On Monday, U.S. President Donald Trump threatened to impose an additional 5% tariff on Mexico if it doesn't immediately provide additional water to help U.S. farmers.

Mexican officials will have a meeting with their U.S. counterparts on Tuesday to discuss the dispute, President Claudia Sheinbaum said at a daily press conference.

Investors were also parsing comments from central bank deputy governor Galia Borja, who said that inflation risks remain tilted to the upside. Data on Tuesday showed the annual inflation rate accelerated in November, landing above market expectations.

In Argentina, Economy Minister Luis Caputo said the country is looking to issue around $1 billion in bonds on Wednesday, targeting a coupon rate below 9%.

Most of the country's dollar-denominated bonds were trading slightly higher. Stocks .MERV dropped 1.7%, while the Argentine peso ARS=RASL weakened 0.14%.

The economy minister announced a plan to lower export taxes on grains like soybeans and corn, a move that will please the farming sector, a core supporter of President Javier Milei.

Chilean equities .SPIPSA fell 0.4% and were on track to snap a nine-day winning streak if current levels hold, while the peso CLP= fell 0.35% against the dollar, tracking regional weakness even after data showed a November trade surplus that beat expectations.

In an interview with Politico, Trump warned he could extend his anti-drug military operations to Mexico and Colombia, after threatening action against Venezuela earlier.

The U.S. leader has repeatedly clashed with Colombian President Gustavo Petro this year. The Colombian peso COP= slipped 0.6%.

Key Latin American stock indexes and currencies: