EMERGING MARKETS-LatAm equities drop to two-week lows as Middle East conflict widens

By Twesha Dikshit

March 2 (Reuters) - Latin American equities slid to over two-week lows on Monday as the escalating conflict in the Middle East led to a global selloff, while sending oil prices soaring and a dash towards safe havens including gold and the U.S. dollar.

The U.S.-Israeli air war against Iran embroiled the region as Israel attacked Lebanon in response to strikes by Hezbollah and Tehran launched missiles and drones at Israel, Gulf States and a British air base in Cyprus.

The MSCI Latin American stocks gauge .MILA00000PUS was down 1.5%. A corresponding currencies index fell 0.9%.

Analysts cited concerns the conflict would drive up inflation and set back global economic recovery.

IMPLICATIONS WILL VARY COUNTRY BY COUNTRY

"For emerging markets, the implications are likely to be uneven and highly differentiated," said Gramercy in a note.

"Energy exporting countries and those with strong external balances may benefit from higher commodity prices, while energy importers with weaker current accounts or greater inflation sensitivity face more pronounced near-term pressure."

Inflationary concerns are focused around the Strait of Hormuz as disruption of shipping through the waterway drove energy prices higher.

The waterway is a conduit for about a fifth of the world's seaborne oil trade flows as well as large quantities of liquefied natural gas.

Most LatAm equities were lower and those in Chile .SPIPSA fell by almost 2%. The country's economic activity fell 0.1% in January, central bank data showed, significantly below market forecasts. The peso CLP= dropped 1.4% against the U.S. dollar.

Brazil's Bovespa .BVSP dipped 0.4%. The country's treasury secretary said the upcoming interest-rate-cutting cycle could prove shorter than expected if the conflict in Iran is protracted.

A central bank poll in the region's largest economy showed economists expected the year-end interest rate to be 12%.

Benchmark indexes in Argentina .MERV and Peru .MXNUAMPESCPGPE dropped by 0.6% and 0.3%, respectively.

As a stronger dollar pressured other currencies, the Colombian peso COP= and Brazilian real BRL= 0.8% and 1.2% weaker, respectively.

Meanwhile, Morgan Stanley downgraded its view on Mexico's sovereign debt, citing risks including a wider-than-forecast budget deficit and Washington taking a hard line in the upcoming USMCA talks.

The Mexican peso MXN= weakened by as much as 1% against the dollar and was last down 0.7%. Stocks .MXX slipped 0.5%.

In other emerging markets, Israel's equities .TA125 added 4.8% while the shekel ILS= appreciated 1.4% versus the dollar to 3.088, nearing a 30-year high reached last month.

Stocks and bonds in Turkey, Iran's neighbour, also fell with the blue-chip equity index .XU100 dropping 2.7% while its international bonds had fallen by as much as one cent.

Key Latin American stock indexes and currencies at 14:48 GMT: