EMERGING MARKETS-Latam FX rises ahead of Brazil decision in crowded EM central bank week

By Pranav Kashyap and Niket Nishant

March 16 (Reuters) - Latin American currencies started the week on firmer footing on Monday, with investors bracing for interest rate decisions from the Brazilian central bank and the U.S. Federal Reserve as the war in the Middle East dragged into a third week.

Israel said it had mapped out plans for at least three more weeks of war on Iran, dimming hopes for a swift resolution to the Middle East conflict that has clouded the global inflation outlook.

A gauge tracking regional equities .MILA00000PUS jumped 2.4%, while a similar gauge for currencies jumped .MILA00000CUS 1.3%.

Mexico's peso MXN= jumped 1.6%, Argentina's ARS= ticked up 1.8% and Brazil's real BRL= gained 1.8%, rebounding from a near two-week low, as the dollar pulled back from 10-month peaks.

"The region is less sensitive to global trade disruptions. Within the region, the real is likely to be a bigger outperformer given positive oil and gas exports, alongside supportive polling trends," HSBC analysts said in a note.

In Sao Paulo, stocks .BVSP rose 1.8% after closing out a turbulent week.

Brazil's monetary policy committee - known as Copom - meets later this week and is expected to deliver the country's first interest rate cut since May 2024.

After a year in which the Brazilian real strengthened by 11% against the U.S. dollar - partially benefiting from attractive carry trade opportunities - the expected rate cuts could contribute towards a weaker currency in 2026.

Any signal that the monetary policy easing will be faster or deeper than expected risks unwinding those carry flows quickly.

"We prefer having a positive stance towards the real... assuming the current Middle East crisis does not deteriorate and create global stagflation concerns," HSBC analysts said.

The week, with at least five emerging-market central bank decisions packed into roughly 24 hours, will go a long way towards defining the broader EM monetary policy landscape amid energy spikes and a murky economic backdrop.

The Federal Reserve meeting on Wednesday adds another layer of complexity. Markets expect a hold, while economists stuck to their views of a cut in June despite the risk that disruption to energy markets will fuel already high inflation.

Peruvian stocks .MXNUAMPESCPGPE edged 0.6% higher, while the sol PEN= gained 1.2%. Peru's economy expanded 3.54% year-on-year in January, roughly in line with the central bank's own estimate, data released on Sunday showed.

Elsewhere in EM, the Russian rouble RUB= slumped 1.8% against the dollar, on expectations that the central bank will cut interest rates later in the week.

The South African rand ZAR= recovered from a more than three-month low it touched on Friday, while Johannesburg stocks .JTOPI rebounded from their lowest in over a month.

"Overall, we expect global markets to be weak as the conflict remains ongoing. We don't see the emerging markets as specifically exposed," portfolio managers at ClearBridge Investments wrote.

Key Latin American stock indexes and currencies: