EMERGING MARKETS-Brazil-led losses push LatAm stocks lower

By Niket Nishant

Dec 17 (Reuters) - Latin American stocks extended their slide on Wednesday, with Brazilian equities leading losses for a second consecutive day as local policy signals dampened sentiment.

Lawmakers in the country's lower house approved a bill reducing federal tax benefits for several sectors, a day after the central bank reiterated its wait-and-see stance and signalled it would keep interest rates on hold for a prolonged period.

The Bovespa index .BVSP fell 0.6%. The real BRL= climbed 0.2% against the dollar, but remained near two-month lows.

The selloff highlights unease over a combination of near-term policy uncertainty and longer-term political risks, as markets reassess Brazil's fiscal outlook ahead of the 2026 presidential race.

Concerns about political turbulence have come to the fore in recent weeks after Senator Flavio Bolsonaro, the eldest son of former President Jair Bolsonaro, announced his bid for the election, denting expectations among investors for a more seasoned, market-friendly candidate.

"Our interpretation is that markets think Flavio is less likely to win against President Luiz Inacio Lula da Silva. And that puts Lula's party in a more competitive position, and gives it more leverage to perhaps pursue populist policies," said Felipe Camargo, lead global economist at Oxford Economics.

MIXED CUES KEEP INVESTORS ON EDGE

In Chile, stocks .SPIPSA inched 0.6% higher and were on track for their first day of gains this week, after the central bank raised its forecast for gross domestic product growth next year. The peso CLP= fell 0.8%.

Investors are closely watching developments after far-right candidate Jose Antonio Kast won Chile's presidential election.

"Kast's victory is the best possible outcome, as it not only minimizes the risk of further deterioration, but also provides a better outlook than that offered by his right-of-center rivals in a country badly in need of reform," said Geronimo Mansutti, senior LatAm credit analyst at Tellimer Research.

Separately, escalating tensions between the U.S. and Venezuela have also caused jitters among investors in Latin America.

U.S. President Donald Trump ordered a "blockade" of all sanctioned oil tankers entering and leaving Venezuela, in a move that could disrupt oil flows and sour investors' sentiment towards the region.

The Argentine peso ARS=RASL was up 0.3%. On Monday, the central bank unveiled a new monetary framework adjusting the peso's trading band.

Peru's Lima Stock Exchange .MXNUAMPESCPGPE inched 0.2% higher as the prices of two of its top exports, gold and copper, climbed.

Overall, the MSCI index that tracks Latin American equities .MILA00000PUS dropped 0.6%, while a gauge of regional currencies .MILA00000CUS slipped 0.5%.

Key Latin American stock indexes and currencies: