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Currencies rise 0.8%, stocks climb 0.6%

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Politics in Brazil and Chile in the spotlight

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Argentina's dollar bonds edge higher

By Niket Nishant

Dec 11 (Reuters) - Latin American currencies climbed on

Thursday and were on track for their strongest session in nearly

two months as the dollar weakened following an interest rate cut

by the Federal Reserve.

Higher-yielding currencies in the emerging markets often

benefit when the Fed cuts rates, as investors seek alternative

destinations to park capital.

The MSCI index for Latin American currencies

rose 0.8% while the stocks gauge edged 0.6%

higher.

Brazil's real led the gains after its central bank

left interest rates at a near two-decade high on Wednesday and

stuck to its hawkish tone. It was last up 0.8% against the

dollar.

The Chilean peso also firmed 0.7%, extending its

strong run in the week leading up to the presidential run-off on

Sunday where far-right candidate Jose Antonio Kast is expected

to win.

POLITICS, DATA TEMPER RISK IN BRAZIL

Sentiment toward equities in some of the region's major

economies remained weak. For global investors, the combination

of currencies' strength and patchy stock performance could

sharpen the focus on country-specific stories and drive more

selective positioning across the region in the months ahead.

Brazil's Bovespa index fell 0.2%, resuming its slide

after stabilizing a day earlier. Data on Thursday showed retail

sales volumes unexpectedly rose in October, which could further

dampen hopes for a rate cut.

The data comes at a sensitive time for Brazil, where

political uncertainty is back in focus.

Stocks have traded in a tight range this week after Senator

Flavio Bolsonaro, the eldest son of former President Jair

Bolsonaro, confirmed his intention to run for president next

year, dashing hopes for a more market-friendly contender such as

Sao Paulo Governor Tarcisio de Freitas.

"Political volatility is a reason not to have as large a

trade in Brazil as you might normally want, but the

macroeconomic story is still very favorable," said David Hauner,

head of global emerging markets fixed income strategy at BofA

Global Research.

"Brazil is the one big emerging market that has a fiscal

issue. And a favorable election scenario is one where you get an

administration that is going to be focusing on some fiscal

consolidation."

Separately, Mexican equities rose 0.9%. The Senate on

Wednesday approved tariff hikes of up to 50% on imports from

China and several other Asian countries, aiming to bolster local

industry despite opposition from business groups.

Argentina's dollar-denominated bonds were also trading

higher, a day after the government raised $1 billion through a

bond sale as it prepares for an eventual return to international

capital markets.

Key Latin American stock indexes and currencies:

Equities Latest Daily %

change

MSCI Emerging Markets 1377.1 -0.39

MSCI LatAm 2695.42 0.57

Brazil Bovespa 158688.02 -0.24

Mexico IPC 63980.63 0.9

Chile IPSA 10195.64 0.25

Argentina Merval 3008637.43 -0.166

Colombia COLCAP 2121.32 0.08

Currencies Latest Daily %

change

Brazil real 5.4274 0.82

Mexico peso 18.1201 0.2

Chile peso 916.04 0.69

Colombia peso 3805.64 0.75

Peru sol 3.361 0.21

Argentina peso (interbank) 1435 0.21