EMERGING MARKETS-LatAm stocks surge, still set for biggest monthly drop since July

By Johann M Cherian and Niket Nishant

March 31 (Reuters) - Latin American stocks shot up on Tuesday as investors remained hopeful about an end to the Middle East conflict, even after past bouts of optimism had proven misplaced.

MSCI's index tracking equities in Latin America .MILA00000PUS jumped 3.6%, but was on track for its biggest monthly decline since July.

A similar gauge tracking currencies .MILA00000CUS edged up 0.7% against a weaker U.S. dollar. Still, it was set for the steepest monthly drop since December 2024.

The month-long war in the Middle East has disrupted shipping through the Strait of Hormuz, a vital waterway for global oil flows, and pushed up crude prices.

Fears that higher oil prices could reignite inflation and weigh on global growth have been a major drag on equities.

However, the pessimism has at times been tempered by hopes for a swift end to the conflict, particularly when U.S. President Donald Trump has softened his rhetoric.

In line with that, sentiment was boosted on Tuesday after the Wall Street Journal reported that U.S. President Donald Trump told aides he was willing to end the military campaign against Iran even if the Strait of Hormuz remained largely closed.

However, oil prices climbed as other reports suggested that the U.S. was putting more troops on the ground, and Iran attacked oil tankers off Dubai, suggesting the conflict was far from over.

"While less severe than the pandemic or global financial crisis, the hit to growth (from a prolonged Iran war) would represent a larger, more coordinated slump than any other global downturn of the past 40 years," economists at Oxford Economics wrote.

Abra Group, the holding company that controls airline Gol , said that Petrobras will raise jet fuel prices by about 55% starting April 1.

Chile's peso CLP=, the most sensitive in the region to spiking crude prices, gained 0.7%, but was on track for its biggest monthly drop since October 2024.

The country's stocks .SPIPSA were 2% higher but headed for their second straight month of declines.

RATE HIKE IN COLOMBIA

Colombia's central bank on Tuesday raised its benchmark interest rate to 11.25%, its second consecutive hike as it sought to curb inflation that is significantly above target.

"Monetary policy is now firmly restrictive. The (central bank) is signaling that restoring credibility takes priority, even as political tensions rise," said Andrés Abadía, chief LatAm economist at Pantheon Macroeconomics.

The hike came after Finance Minister German Avila, who represents the government on the central bank's board, said a 100-basis point rise was "disproportionate."

The local peso COP= edged up 0.1%, while stocks .COLCAP added 3.4%.

Brazil's real BRL= and Mexico's peso MXN= also rose 1.2% and 1%, respectively.

In Argentina, stocks rose 4%. Data released by the government's INDEC statistics agency said that poverty rate decreased to 28.2% in the second half of 2025.

This year will also be especially crucial for politics in the region, with Colombia and Brazil facing elections.

Brazilian President Luiz Inacio Lula da Silva said that Vice President Geraldo Alckmin will again be his running mate in October's presidential election.

The incumbent president and his rival, Senator Flavio Bolsonaro - son of former President Jair Bolsonaro, are seen tied in a simulated run-off for this year's election, a BTG Pactual/Nexus poll showed.

Key Latin American stock indexes and currencies: