EMERGING MARKETS-LatAm stocks plunge to two-month lows as Middle East war rages on

By Twesha Dikshit and Niket Nishant

March 20 (Reuters) - Latin American equities tumbled to two-month lows on Friday as the unresolved war in the Middle East fueled concerns over inflation and the trajectory of monetary policy.

The U.S.-Israeli war on Iran has broadened to include attacks on energy infrastructure in the Middle East. That, along with the Strait of Hormuz's closure choking off a major share of global oil supply, has thrown markets into a turmoil and sent oil prices soaring.

The U.S. military is deploying thousands of additional Marines to the Middle East, three officials told Reuters.

"The eight central bank meetings we had this week delivered mixed messages, but overall the tone leaned hawkish, leaving markets at the mercy of energy prices," said BofA Securities' rates strategist Sphia Salim.

The MSCI's Latin American stocks index .MILA00000PUS fell 3.3%, while a corresponding currencies index .MILA00000CUS edged down 1.2%. Equities were on track for a fourth week of losses, their longest losing streak since December 2024.

In a packed week of central bank meetings, markets scrutinized the economic outlook and rate-cut expectations. Most policymakers opted to hold rates steady, but said they were on alert to tighten policy to deal with inflation, if needed.

Brazil's Copom was an exception, cutting rates by a lower-than-expected 25 basis points, but indicated that further reduction could stall if the Middle East war drives inflation higher.

Capital Economics said it expected room for further easing in Brazil due to its current extremely tight monetary stance.

"Central bank meetings in Mexico and Chile next week should give us a broader steer on the implications of the energy price spike on monetary policy across the region," said Kimberley Sperrfechter, Capital Economics' emerging markets economist.

LATAM ASSETS UNDER PRESSURE, EYES ON LOCAL DEVELOPMENTS

Brazil's benchmark index .BVSP dropped 2.6%, while the real BRL= lost 1.9% against the dollar. Former Finance Minister Fernando Haddad said President Lula da Silva was yet to choose candidates for two vacant seats on the central bank's board.

Colombian President Gustavo Petro is being examined in criminal investigations by two U.S. federal prosecutors' offices, a source familiar with the matter told Reuters on Friday. The peso COP= was off 0.4%.

Stocks in Mexico .MXX fell 1.8%, while the peso MXN= weakened 1.3%. Official preliminary data showed the country's economy likely expanded 1.2% in February from a year ago.

China's commerce ministry said it would release the final conclusions of a trade probe launched in September into Mexico's restrictive measures against Beijing.

Peru's shares .MXNUAMPESCPGPE slipped almost 2%, while the Chilean peso CLP= dropped 1.6%.

Energy ministers and mining unions in Peru urged lawmakers to scrap a proposal to halve the time allowed to start production on mining concessions, flagging it could fuel illegal mining and reduce investment.

Argentinian shares .MERV fell 1.7%. Data released by the country's INDEC statistics agency showed that Argentina's economy expanded 4.40% in 2025 compared with the prior year, a touch below analysts' estimate.

Elsewhere in EM, the Russian central bank cut its key rate by 50 bps as widely expected, citing slower inflation, but flagged increasing uncertainty due to the Middle East conflict.

Key Latin American stock indexes and currencies at 1945 GMT: