EMERGING MARKETS-Argentina peso tumbles, Brazil stocks drop as investors eye domestic policy signals

By Niket Nishant and Twesha Dikshit

Dec 16 (Reuters) - The Argentine peso tumbled on Tuesday after the country's central bank adjusted its trading band, while Brazilian equities plunged with policymakers signaling an interest rate cut was not imminent.

The peso ARS= fell 0.8%, touching its lowest in nearly two weeks. On Monday, the central bank unveiled a new monetary framework tying the peso's trading band to inflation in a bid to build reserves and stabilize the economy.

Argentine equities .MERV rose 0.8%. The country's GDP expanded 3.3% in third quarter year-on-year, official data showed, slightly below expectations.

Some Wall Street investment bankers predict the central bank policy could allow the country to make its long-awaited return to international borrowing markets early next year.

The International Monetary Fund called on the government earlier this month to overhaul its foreign exchange policies to accumulate reserves.

"The announcement by Argentina’s central bank that it will widen the peso’s trading bands is a step in the right direction, but it won’t be enough to bring the peso closer to its fair value," Capital Economics' emerging markets economist Kimberley Sperrfechter said in a note.

"Imbalances could continue to mount, which leave the peso at risk of a sharp falls if the recent improvement in investor confidence reverses."

BRAZIL RATE STANCE IN FOCUS

Brazil's Bovespa .BVSP index shed 1.9%, on track to snap a four-day winning streak.

The central bank said on Tuesday that holding interest rates for a prolonged period was appropriate to ensure inflation converges to its target.

"This suggests at least for now that the rate cuts will probably come by the end of the first quarter and not in January as we were expecting before the meeting," said Andres Abadia, chief LatAm economist at Pantheon Macroeconomics.

"If there is some sort of benign inflation numbers in December that will perhaps allow the central bank to cut interest rates in January."

Peru's Lima stock exchange .MXNUAMPESCPGPE rose 0.9%. Shares of building materials maker Cementos Pacasmayo CPACASC1.LM jumped 61% to a record high after Swiss building materials company Holcim HOLN.S said it had agreed to pay $550 million to buy a 50.01% stake in the company.

In Colombia, stocks .COLCAP dipped 0.9% and were on track for their longest losing streak since March.

Mexican stocks .MXX fell 1.5%, posting their biggest one-day loss in over a month, while the peso MXN= rose 0.2%.

The MSCI index that tracks Latin American equities .MILA00000PUS rose 0.4%, while a gauge of regional currencies .MILA00000CUS added 0.3%.

Key Latin American stock indexes and currencies at 19:55 GMT: