* Brazil inflation exceeds target for the first time

since October

* Argentina's opposition seeks alliance as Milei's

popularity hit

* Chile's SQM rises on Q1 profit surge, lifting broader

market

(Updates to afternoon levels)

By Avinash P, Purvi Agarwal and Ragini Mathur

May 27 (Reuters) - Latin American assets were mixed on

Wednesday as contradictory headlines surrounding U.S.-Iran

negotiations to end about a three-month long conflict in the

Middle East kept investors on the edge.

Iranian state television reported that it had obtained a

draft of an initial, unofficial framework for a memorandum of

understanding between Washington and Tehran, under which Iran

would restore commercial shipping through the Strait of Hormuz

to pre-war levels within a month.

Oil prices fell more than 4% after the report,

although markets remained cautious after the White House

dismissed it as a "complete fabrication" in a social media

statement.

Assets have swung sharply throughout the conflict, rallying

on signs of de-escalation and retreating on any indication of

renewed fighting.

COLOMBIA IN FOCUS AHEAD OF VOTE

Colombia's peso strengthened 1.1% against the U.S.

dollar, while the country's main stock index slipped

1.9%, reversing Tuesday's gains.

Colombia heads into the first round of presidential voting

this weekend, with the latest opinion poll showing leftist Ivan

Cepeda and right-wing candidate Abelardo De La Espriella in a

close race.

"Colombian assets would rally in the event of a victory for

a right-wing candidate in the presidential election. The scope

for a rally appears greatest in local-currency bonds," said

Kimberley Sperrfechter, senior emerging markets economist at

Capital Economics.

"Sustaining the rally, though, would require a broader turn

towards market-friendly policymaking and, in particular, a very

large fiscal adjustment - which will be very challenging to

achieve."

In Brazil, where voters would also head to the polls this

year, the real fell 0.4% to a near two-week low, while

local stocks lost 0.3%.

Data showed Brazil's 12-month inflation rate in early May

rose above the upper end of the central bank's target range for

the first time since October 2025, raising doubts over further

monetary easing after two consecutive rate cuts this year.

Mexico remained in focus as it negotiates with the U.S. over

changes to the USMCA, the existing North American free trade

agreement. The Trump administration's trade agency said it would

begin the first of three negotiating rounds with Mexico this

week to revamp the pact.

The USMCA has shielded part of Mexico's exports from some

tariffs imposed by U.S. President Donald Trump in 2025.

The Mexican peso weakened 0.4%, while the country's

benchmark stock index gained 1.4% to its highest level in

two weeks.

Chile's equities rose 1.6%, lifted by a 4% jump in

lithium producer SQM after the company reported

stronger first-quarter profit and revenue.

Argentina's Merval index climbed 4.8% to a more than

one-month high, while the peso was largely flat.

Political developments in the country were back in the

spotlight after leaders within Peronism, the country's main

opposition movement, sought to capitalize on President Javier

Milei's declining popularity and push for a broad alliance ahead

of next year's presidential election.

Broader regional gauges were weaker, with MSCI's index of

Latin American currencies down 0.5% and its

regional stocks index off 0.1%.

Key Latin American stock indexes and currencies at 1832 GMT

Stock indexes Latest Daily % change

MSCI Emerging Markets 1739.12 1.09

MSCI LatAm 3075.34 -0.1

Brazil Bovespa 176040.36 -0.31

Mexico IPC 70153.04 1.38

Chile IPSA 10917.17 1.58

Argentina MerVal 3065195.18 4.82

Colombia COLCAP 2186.86 -1.86

Currencies Latest Daily % change

Brazil real 5.056 -0.44

Mexico peso 17.3664 -0.37

Chile peso 893.56 -0.02

Colombia peso 3625.05 1.14

Peru sol 3.4168 -0.36

Argentina peso (interbank) 1,412.0 -0.07

Argentina peso (parallel) 1,420.0 1.39