EMERGING MARKETS-Latin America mixed as Mexico readies for rate decision, South Africa on hold

By Pranav Kashyap

March 26 (Reuters) - Most Latin American currencies remained on the back foot on Thursday as markets digested monetary policy signals, with Mexican markets readying for an interest rate market decision after South Africa's central bank kept its policy rate on hold.

Mexican stocks .MXX fell 0.8%, while the local peso MXN= recouped losses to trade flat. Banxico is expected to hold rates steady at 7%, as the Mexican central bank takes stock of the inflationary pressures of the Middle-East conflict.

"Even though Mexico's government revenues are mostly protected from a sharp drop in oil prices through hedging, the country is exposed to a major price jump," Alfredo Coutino

director for Latin America at Moody's Analytics said this week.

The oil shock could, Coutino added, therefore have "a direct impact on the trade balance, inflation, and an indirect impact on the economy through the U.S."

Broader gauges tracking Latin American equities .MILA00000PUS and currencies .MILA00000CUS were down 1% and 0.4%, respectively,

In South Africa, the rand ZAR= was little changed, while stocks .JTOPI extended falls slightly after the central bank kept its key policy rate on hold at 6.75%.

Policymakers warned that South Africa's headline inflation could accelerate to around 4%, with fuel inflation expected to surge by more than 18% in the second quarter.

As a net fuel importer, South Africa is heavily exposed to the spike in global energy prices triggered by the Iran war.

A U.S. proposal for ending nearly four weeks of fighting is "one-sided and unfair", a senior Iranian official told Reuters on Thursday, while also stressing that diplomacy had not ended.

The Chilean peso CLP= slipped 0.7%, while equities .SPIPSA were flat. Investors were digesting fuel price rises as the government moved to confront mounting oil costs.

Governments across the emerging world have been working to try to shield their economies from the fallout of a war that has now been going on for nearly a month.

With the crucial Strait of Hormuz shut, oil prices have swung wildly, shaking markets and forcing a dramatic rethink among emerging-market central banks.

At the start of the year, some policymakers - including those in Hungary and Brazil - were preparing to cut interest rates. Now, as inflation risks gather momentum, they are being pushed to consider whether the next move could be a hike.

Brazil's real BRL= remained trapped in a tight range. Inflation rose more than expected in the month to mid-March, although the pace eased from the sharp jump seen a month earlier. The Brazilian benchmark stock index slipped 0.3%.

Elsewhere, Peruvian equities .MXNUAMPESCPGPE led losses, dropping 1%.