EMERGING MARKETS-LatAm assets rise as hopes of Iran de-escalation lift risk appetite

By Pranav Kashyap and Niket Nishant

April 1 (Reuters) - Latin American assets staged a broad-based rally on Wednesday, ushering in April on a buoyant note as investors grew increasingly hopeful about a potential de-escalation in the war involving Iran.

MSCI's index of Latin American equities .MILA00000PUS climbed 1.7%, extending the nearly 4% surge recorded in the previous session.

A comparable index tracking regional currencies .MILA00000CUS rose 1.2%, helped by a softer U.S. dollar.

Brazil's real BRL= touched its strongest level in more than three weeks. With Middle Eastern oil flows under strain, Brazil saw its fuel oil exports to Southeast Asia jump in March, as governments sought to navigate energy price spikes and fuel shortages.

Across broader emerging markets, sentiment strengthened after President Donald Trump told Reuters, hours before he was scheduled to make a prime time address to the nation, that the U.S. will end its war on Iran fairly soon and could return for "spot hits" if needed.

In Chile, the local peso CLP= surged 1.4% after minutes from the central bank's March meeting revealed policymakers had considered the possibility of raising interest rates amid heightened uncertainty stemming from the Iran war.

Much like Chile's central bank, Brazil's monetary authorities - despite delivering a rate cut last month -- have recently struck a more cautious tone, warning about the inflationary fallout from the conflict and signaling uncertainty over the path ahead for further easing.

In Mexico, meanwhile, the current cycle of rate cuts may be drawing to a close, Governor Victoria Rodriguez said earlier this week.

Latin America, which outshone much of the broader emerging-market complex last year, may now face a more delicate challenge persuading investors that the region's allure and carry appeal remain intact.

Diverging monetary policy paths across its major economies are making the landscape increasingly intricate for markets to parse.

Meanwhile, Peruvian equities .MXNUAMPESCPGPE, which have largely outperformed their regional peers, gained 0.9%. Inflation in March posted the country's sharpest monthly rise since December 1993.

"Peru is now almost a 'single-commodity' currency and equity market, with fortunes closely tied to silver prices," said Geoff Yu, BNY's EMEA macro strategist.

The country is gearing up for national elections. It has gone through eight presidents since 2018, and its latest leader was removed by Congress in February, just weeks before the official campaign period began.

"We think congressional elections will support a more stable political system due to changes such as the reintroduction of a Senate," said Joseph Incalcaterra, head of Latin America macro strategy at HSBC Securities.

Elsewhere, South African manufacturing sentiment remained subdued in March as pressures linked to the Iran conflict began to mount. In Ghana, consumer inflation eased for a 15th consecutive month in March.