EMERGING MARKETS-Latam FX, stocks slide to one-month lows as Middle East tensions intensify

By Twesha Dikshit and Purvi Agarwal

March 3 (Reuters) - Latin American assets sank to over one-month lows on Tuesday, extending the previous session's selloff as an escalating Middle East conflict sent oil prices sharply higher and revived inflation worries.

The MSCI Latin American equity index .MILA00000PUS fell 4.6%, while the corresponding currency index .MILA00000CUS slid 1.3% against a stronger dollar as investors sought the U.S. currency's safe-haven appeal.

The MSCI gauges, Chile's peso and Mexican stocks and the peso posted their steepest one-day declines since April, when U.S. President Donald Trump's "Liberation Day" tariffs rattled global markets.

Oil prices soared 6% in their third session of gains, as the war entered its fourth day. Iran responded to the U.S. and Israeli air war with strikes on energy infrastructure in Gulf countries and tankers in the Strait of Hormuz, disrupting commercial shipping.

The Strait of Hormuz carries about a fifth of the world's oil and liquefied natural gas. A senior Iranian Revolutionary Guards official said the waterway was closed and warned of fire on any ship attempting to pass.

Still, equity indexes in Colombia .COLCAP and Mexico .MXX, which export oil, posted declines of 1.1% and 2.9%, respectively. The Colombian peso COP= was down 1.5%, while Mexico's peso MXN= dropped 2.2%.

"It (the conflict) could take weeks, it could be messy and oil prices could jump more. These are all uncertain. So the market starts to price in the worst scenarios," said Kathryn Vera, chief market strategist at StoneX.

"When you have a risk-off sentiment, volatility hits the riskiest asset classes the most."

RISK-OFF MOOD EMBROILS GLOBAL MARKETS

Brazil's benchmark stock index .BSVP fell 3% and the real weakened 2% against the dollar. Data showed Latin America's largest economy grew 2.3% in 2025, its weakest performance since the 2020 COVID pandemic, as high interest rates weighed on consumption and investment.

Shell's SHEL.L Brazil CEO said the conflict could offer Brazil an "enormous opportunity" to attract investment to develop its oil assets.

"If things look worse for China, they're going to need more energy from Brazil, because Venezuela and Iran were the ones that serviced Chinese oil needs in very large amounts... it could pick up market share," said Vera.

Still, not all EM countries will be affected equally, with those dependent on oil imports being more vulnerable, while the impact of the conflict could go beyond inflation to pressure external balances and capital flows.

In Chile .SPIPSA , copper-linked stocks fell 2.9% to an over three-month low and the peso weakened CLP= 3% as the risk-off mood spread in and beyond emerging markets. Argentina's stocks .MERV pared losses to trade flat, while its currency ARS=RASL fell 1.5%.

The broader MSCI emerging markets index was set to lose over 5% over the previous two sessions. South African stocks, government bonds and the rand extended declines , weighed by a pullback in gold.

In Europe, Poland's blue-chip index .WIG20 closed 4.5% lower. Stocks in Greece .ATG, a dominant force in global shipping, slumped 5.8%.

Meanwhile, the UAE Capital Markets Authority said the country's bourses would resume trading on Wednesday, after a two-day suspension following Iran's strikes on the Gulf state.

Key Latin American stock indexes and currencies: