CORRECTED-EMERGING MARKETS-Latam stocks set for largest weekly declines since 2022 as Iran war roils markets

By Twesha Dikshit

March 6 (Reuters) - Latin American stocks and currencies fell on Friday and were on track to post the sharpest weekly declines in years as investors monitored the escalating Iran war that dampened risk appetite, while weak U.S. labor data was also in focus.

Tensions in the Middle East showed no signs of abating with U.S. President Donald Trump saying that there would be no deal with Iran, except "unconditional surrender," while Israel launched attacks on Beirut and continued its military action against Tehran.

Oil prices soared, with shipping and energy exports through the vital Strait of Hormuz halted, adding to concerns over energy supplies that could drive inflation higher.

The MSCI Latin American stocks index .MILA00000PUS dropped 1.9% and was on track for its steepest weekly decline in over three years. A corresponding currencies gauge .MILA00000CUS fell 0.8%, set for its largest weekly loss in over two years.

EM stocks .MSCIEF lost almost $1 trillion in market value after this week's selloff with markets in Asia and emerging Europe facing pressure due to their reliance on oil imports. A fade in risk tolerance also weighed on EM assets aiding the U.S. dollar.

"Latam is finding itself in a very difficult position despite being a sort of safe haven in terms of emerging markets, because its far away from the conflict in the Middle East, in Ukraine, from the geopolitical noise from China," said Andres Abadia, chief Latam economist at Pantheon Macroeconomics.

"We think that Latam will probably do much better than other emerging markets but it won't be immune to the deterioration of the financial global conditions."

RISK AVERSION HITS MOST EM MARKETS

Chile's stocks .SPIPSA ticked lower, with the oil-importing nation set for weekly losses of over 6%. Official data showed the country's 12-month inflation fell in February to its lowest level in over six years.

Economists widely expected the Chilean central bank to cut its key rate by 25 bps on March 24, but shifting geopolitical developments could weigh on expectations.

Brazil's benchmark index .BVSP fell 1%. Industrial production in Latin America's largest economy rose more than expected in January, according to government data, despite high interest rates.

Meanwhile, Colombians head to the polls on Sunday to elect a new Congress and choose three of the presidential candidates who will contest elections in May. The stock index .COLCAP fell marginally.

With elections in Brazil and Peru also on the radar this year, investors will closely follow developments, with analysts expecting some volatility in the region.

Regional currencies were lower across the board, with the Peruvian sol .PEN and Chilean peso CLP= down 1.4% and 1.1%, respectively.

The U.S. economy unexpectedly shed jobs in February, potentially hinting at a deterioration in labor market conditions.

Elsewhere, bourses in the Middle East were broadly higher with the exception of those in the UAE and Bahrain, while emerging Europe stocks posted declines.

Indexes in Turkey .XU100, Poland .WIG20, Hungary .BUX and Greece .ATG were all down over 2%. South Africa's benchmark index .JTOPI tumbled almost 3%.

Still, Barclays said money had continued to flow into EM funds despite geopolitical developments with credit funds seeing the largest weekly intake since January 2023.

Asia-focused funds saw outflows but funds investing globally continued to attract interest, data from the bank showed.

Key Latin American stock indexes and currencies at 15:10 GMT: