EMERGING MARKETS-Latam assets subdued as Middle East conflict cloud inflation, growth outlook

By Johann M Cherian

March 24 (Reuters) - Latin American stocks and currencies were subdued on Tuesday as inflation and growth concerns plagued investors in the face of contrary signals from the U.S. and Iran on potential negotiations to end the Middle East conflict.

MSCI's index tracking equities in the region .MILA00000PUS closed over 10% below its February high earlier this week, confirming that it had been in correction since then, according to a commonly accepted definition. The index was flat on Tuesday.

Benchmark indexes in the region were volatile, with net-oil-importer Chile .SPIPSA down 0.6% and Brazilian .BVSP and Peruvian equities .MXNUAMPESCPGPE off session lows.

U.S. President Donald Trump's decision on Monday to postpone the bombing of the Islamic Republic's energy and power infrastructure, because of what he described as productive talks with Iranian officials, was met with initial relief.

However, investors were skeptical as Iran denied his remarks and air strikes in the region continued. Prices of crude oil, a key resource for developing economies, wavered and were last near $110 a barrel.

"The longer oil prices stay high, the longer central banks will feel obligated to sound as if they will tighten policy," said Thierry Wizman, global FX & rates strategist at Macquarie Group.

ENERGY COSTS COMPLICATE POLICY MAKING

Chile is seen to be among the most vulnerable to surging energy costs in the region and at a time when it is also grappling with strained public finances. Fuel prices are expected to spike in the coming days after the government invoked a clause in its fuel stabilization mechanism to rapidly align with surging international prices.

The peso CLP= see-sawed on Tuesday and is among the top losers in the region this month.

Later in the day the local central bank is due to announce its verdict on monetary policy. Economists polled by Reuters anticipate no change to the rate at 4.5%, although greater scrutiny will be on the policymakers' outlook.

More broadly, the MSCI currencies gauge .MILA00000CUS was steady against the dollar. The greenback is perceived to be a safe-haven since the U.S. is a net exporter of oil.

Meanwhile, data out of Mexico showed the annual inflation rate accelerated in the first half of March to levels not seen since late 2024, backing expectations that the central bank will keep its interest rate unchanged at its meeting this week.

The benchmark stock index .MXX was up 0.6%, having dropped nearly 0.4% earlier i the day, while the peso MXN= slipped 0.2% in volatile trading.

Brazil's central bank had lowered its benchmark interest rates by 25 basis points last week, although minutes from the meet showed inflation worries could put it on a tighter policy path up ahead.

Bucking the trend, Bolivia's bond maturing in 2030 USP37878AE81=TE added over 1.8 cents on the dollar after ratings agency S&P Global lifted its credit rating with a stable outlook, citing lower debt-service obligations.

Hard currency bonds of other markets including those of Peru US715638EC21=TE, Mexico XS2280637039=TE, Chile US168863DL94=TE and Colombia US195325EM30=TE were broadly steady.

Elsewhere, Reuters reported that South Korea's state-run pension fund is conducting strategic foreign exchange hedging operations, supplying dollars in the market as the won wallows near 17-year lows. The won KRW was last at 1,496 per dollar.