EMERGING MARKETS-LatAm FX recovers, stocks slide as commodity sell-off persists

By Purvi Agarwal

Feb 2 (Reuters) - Most Latin American currencies strengthened against the U.S. dollar on Monday after logging declines in the previous session, while stocks slid, tracking sharp declines in commodity prices.

Colombian stocks .COLCAP were down 1.2%, tracking a 5% decline in oil prices as tensions between the U.S. and Iran showed signs of a de-escalation.

Retreating copper prices weighed on stocks in the world's largest copper exporter; Chile's stocks .SPIPSA fell 1%.

On the flip side, Brazil's heavyweight index .BVSP was up 0.2%. That helped limit overall declines on the broader MSCI index .MILA00000PUS, which was flat.

A rout in gold and silver prices in early trade on Monday had weighed heavily on assets in commodity-rich emerging markets such as South Africa. Since then, the selloff has eased, with stocks in Latin America seeing a milder impact.

U.S. President Donald Trump's nomination of former Federal Reserve governor Kevin Warsh on Friday provided support for the U.S. dollar, followed by a meltdown in metal prices. Markets expect Warsh would be likely to stop short of the aggressive monetary policy easing Trump has sought.

"What may have begun as profit-taking turned into an absolute rout, leaving traders who were late to the party seriously out of pocket. The move was compounded by a sharp snapback in the U.S. dollar after the greenback hit multi-year lows," said David Morrison, senior market analyst at Trade Nation.

"There's been quite an uptick in FX volatility of late, suggesting a relatively high level of uncertainty amongst investors."

EM equities rallied last month as global investors poured in money at the fastest clip in years in January, as a weaker dollar and diversification away from the U.S. pointed to an extension of the rally the asset class staged last year.

On the FX front, most LatAm currencies appreciated against the dollar, after falling in the previous session.

Colombia's peso COP= appreciated 1.6%, a day after the country's central bank hiked interest rates by 100 basis points to 10.25%, for the first time since 2023, in a move that shocked analysts.

Chile's peso CLP= was up 0.6%. Economic activity in the country rose 1.7% in December from a year earlier, central bank data showed, beating market forecasts of a 0.9% expansion.

On the flip side, Brazil's real BRL= was largely muted.

Argentina's peso ARS=RASL was among the decliners. Local newspaper La Nacion reported on Sunday that the country bought $808 million in Special Drawing Rights (SDRs) from the U.S. Treasury to meet an interest payment to the International Monetary Fund (IMF).

Markets in Mexico were closed for a public holiday.

Meanwhile, right-wing populist Laura Fernandez won a commanding victory in Costa Rica's general elections on Sunday, while her ruling party is set to gain a majority in Congress.

Key Latin American stock indexes and currencies: