EMERGING MARKETS-Latin American stocks extend rebound; currencies hold firm amid Iran war jitters

By Pranav Kashyap

March 25 (Reuters) - Most Latin American stocks marched higher for a third straight session on Wednesday, even as jittery investors kept one eye on the conflict in the Middle East and Chile's markets absorbed the central bank's latest interest rate decision.

Argentina's peso ARS= led the region's currencies with nearly a 1% gain against the dollar, while Brazil's real BRL=, Colombia's peso COP=, and the Mexican peso MXN= traded in a tight range.

The mood across markets remained cautious amid hopes for an end to the U.S.-Israeli war with Iran. Pakistan has delivered a proposal from the U.S. to Iran, and either Pakistan or Turkey could be venues for discussions to de-escalate the war in the Gulf, a senior Iranian official told Reuters.

The comments, made on condition of anonymity, were among rare signs that Tehran might consider diplomatic proposals, despite insisting in public that no talks were under way and it would make no deal with President Donald Trump's administration.

Latin American currencies suffered smaller losses than their European counterparts over the course of four weeks. The region's comparatively low dependence on Middle Eastern oil gives it a natural buffer against energy price shocks that are hammering markets elsewhere.

"Even if a way will be found to end direct hostilities relatively soon, the unintended consequences of the Iran conflict will be felt much longer than the few weeks initially announced," said Arthur van Slooten, strategist for global asset allocation at Societe Generale.

CHILEAN STOCKS SNAP LOSING STREAK

Chile's main equities index .SPIPSA gained 2.3%, snapping a bruising five-day losing streak - the longest such run since last October. The index, however, is heading toward its first quarterly decline in seven, weighed down by signs of sluggish economic growth.

The Chilean central bank held its benchmark interest rate steady at 4.5% on Tuesday, a widely expected move given that inflation is still within target. It also trimmed its GDP growth forecast for 2026 to a range of 1.5% to 2.5%. With Middle East tensions stoking oil prices and fanning inflation expectations, policymakers signaled little appetite for rate cuts anytime soon.

That caution is shared in other emerging markets. The central banks of Sri Lanka and Hungary were among those that kept rates on hold this week, with energy price volatility clouding their inflation outlooks and tilting the risks firmly to the upside.

Mexico's central bank is next up, with its rate decision due on Thursday - and markets broadly expect it to hold borrowing costs steady as the Iran conflict adds to inflation pressures and the domestic economy shows signs of running hot.

Broader gauges tracking Latin American equities .MILA00000PUS and currencies .MILA00000CUS were up 1.7% and 0.4%, respectively, on Wednesday. Both indexes are on track for a fifth straight quarter of gains. The S&P 500 index .SPX is currently nursing a 4.2% quarterly loss.

The sting of wild swings in oil prices is being felt beyond Latin America's borders, and governments from New Delhi to Manila to Warsaw are scrambling to shield their economies from supply shortages. Brazil rolled out a new plan to help states subsidize diesel imports, while also establishing $2.87 billion in credit lines to support companies hit hardest by geopolitical instability.

Brazilian .BVSP and Mexican .MXX equities were up 1.4% and 1.2%, respectively, on Wednesday, and both are on course to log a fifth consecutive quarterly gain.