EMERGING MARKETS-Latin American stocks set for weekly gains even as war fatigue lingers

By Pranav Kashyap and Niket Nishant

March 27 (Reuters) - Latin American stocks were on track for weekly gains on Friday, capping a week that offered investors a glimmer of hope in an otherwise turbulent conflict that has rattled global energy markets for nearly a month.

A broader gauge tracking Latin American equities .MILA00000PUS was down 1.3% on the day. But it was set to break a four-week losing streak, as markets drew cautious optimism from diplomatic signals out of Washington and Tehran this week.

Banxico, Mexico's central bank, surprised markets on Thursday with a 25-basis-point rate cut — a move aimed at jump-starting an economy that has stubbornly refused to gain momentum.

Mexican stocks .MXX were flat on the day, but remained on course to snap their longest weekly losing streak since June 2024.

"Cutting rates in the current environment is a little dangerous and does suggest that Banxico is slightly less concerned about currency weakness than many other emerging market central banks," said ING's global head of markets Chris Turner.

But the cut comes with a caveat. Inflation continued to climb, a reminder that policymakers are trying to revive growth amid spiking energy prices — a direct consequence of the ongoing conflict in the Middle East, which has forced central banks worldwide to rethink their rate outlooks.

"Governments in Latin America, unlike those in other parts of the emerging world, have generally refrained from large fiscal measures to shield households and businesses from higher energy prices. While that's good news for the public finances, it does mean that inflation will rise sharply," said Kimberley Sperrfechter, emerging markets economist at Capital Economics.

"This week's central bank meetings and communications suggest that, so far, policymakers don't appear to be too concerned by that."

U.S. President Donald Trump said he would again extend the deadline for Iran to reopen the Strait of Hormuz or face the destruction of its energy plants, after Tehran had earlier rejected a 15-point U.S. proposal to end the fighting as it deemed it "unfair."

However, the euphoria was diminished as both sides offered sharply different accounts of any diplomatic progress, casting a long shadow over hopes for a swift resolution.

The currencies gauge .MILA00000CUS was down 0.7% on the day.

Brazil's real BRL= was flat as markets digested the country's current account deficit that came in slightly wider than expected.

Elsewhere, the financial toll of the Middle East conflict continued to register in Israel's debt markets, where investors kept demanding a higher premium to hold the country's bonds.

The yield on the country's 10-year IL10YT=RR and 5-year notes IL5YT=RR touched its lowest since September 2025.

Global ratings agency Fitch on Friday reaffirmed Israel's "A" credit rating, saying recent military operations were likely to sharply reduce Iran's threat to the country, but kept a negative outlook.

Meanwhile, a U.S. appeals court on Friday struck down a $16.1 billion judgment against Argentina for seizing control of state-owned oil company YPF YPFDm.BA in 2012.

Stocks in Buenos Aires .MERV gained 1.2%. Canada's minister of international trade said that he hopes to conclude a free-trade agreement with South America's Mercosur bloc by the autumn.

Key Latin American stock indexes and currencies: