EMERGING MARKETS-LatAM FX up, stocks mixed as US trade uncertainty looms; Mexican assets slide

By Pranav Kashyap and Purvi Agarwal

Feb 23 (Reuters) - Most Latin American assets ticked up on Monday, even as investors tiptoed around the latest updates in U.S. trade policy, while Mexican assets came under pressure after a weekend military raid that killed cartel leader Nemesio Oseguera.

The Mexican peso MXN= extended early declines and was last down 0.8%, set for its steepest one-day fall in over two weeks. Local stocks .MXX shed 1.1% and the 10-year yield MX10YT=RR was little changed.

Following reports of the leader's death, cartel gunmen reportedly blockaded highways with burning vehicles and torched businesses across more than half a dozen states, bringing parts of the country to a standstill.

The operation comes amid mounting pressure from Washington on Mexico to intensify its offensive against cartels accused of producing and trafficking drugs, especially fentanyl, into the United States.

"The immediate impact of the outburst of violence in Mexico following the killing of drug kingpin 'El Mencho' is likely to be a hit to tourism, but the longer the unrest drags on, the bigger the risk that it disrupts manufacturing too," said Kimberley Sperrfechter, EM economist at Capital Economics.

"The killing shows that Mexico's government is doing what it can to appease the Trump administration ahead of this year's USMCA review."

USMCA is the free trade agreement between the U.S., Mexico and Canada, and it will be reviewed later this year.

Mexico's economy grew more than expected in the fourth quarter, logging its strongest quarterly expansion in more than a year, data showed on Monday.

Other LatAm currencies edged higher against the dollar, largely benefiting from rising commodity prices, while stocks were hit by waning appetite for risk assets as global markets brace for renewed uncertainty over U.S. trade policy.

MSCI's index tracking stocks in the region .MILA00000PUS tumbled 1.1%, while the currency equivalent .MILA00000CUS was up 0.1%.

After the U.S. Supreme Court struck down his emergency tariffs, President Donald Trump announced a new 10% levy on the rest of the world, only to lift it again to 15% soon after.

The Brazilian real BRL= rose 0.2% to its highest level since May 2024, while stocks .BVSP reversed course to fall 0.9%.

The U.S. court's striking down of Trump's tariffs removed levies specifically targeting Brazil, thus restoring its competitiveness in the U.S. market, Brazil's vice-president said.

"Some countries, particularly emerging economies such as Brazil, China and India, benefit greatly from the reduction and might experience a significant frontloading of their exports to the U.S.," UniCredit analysts said.

Colombia's currency COP= gained 0.4%, while stocks .COLCAP soared 1.5% as oil prices hit their highest level in six months.

The region is also navigating diverging interest rate paths that complicate the monetary-policy outlook and, in turn, carry-trade opportunities.

The Argentine peso =RASL> gained 0.5%, but stocks .MERV fell 3.7%. The Chamber of Deputies on Friday approved a labor reform with modifications that had already been voted on in the Senate. Now, it must be ratified by the lower house to become law.

Key Latin American stock indexes and currencies: