*

Mexico inflation up 3.74% y/y in first half of February

*

Azul jumps after earnings

*

Bank of Israel keeps rates on hold

*

MSCI Latam FX index down 0.6%, stocks down 1.1%

(Updates to mid-session trading)

By Lisa Pauline Mattackal and Purvi Agarwal

Feb 24 (Reuters) -

An index tracking Latin American currencies was on track for

its worst day in three weeks on Monday and stocks were lower as

investors assessed the likelihood and severity of potential U.S.

tariffs ahead of a key deadline next week.

MSCI's index tracking Latin American currencies against the

dollar dipped 0.6%, eyeing its worst session

since early February. The stocks index dropped

1.1%.

The Latam FX index has gained around 3% so far in February,

while the gauge of regional stocks has gained about 2.4% as

ebbing concerns about U.S. President Donald Trump's threatened

tariffs have caused the dollar's rally to lose some steam.

Most investors increasingly look at Trump's tariffs as a

mostly negotiating tactic, but still, uncertainty around their

materialization has kept investors nervous.

Mexico and Canada are expected to

intensify efforts

on border security and curbing fentanyl trafficking this

week to avoid punishing 25% tariffs on their exports to the

U.S., the deadline for which stands at March 4.

"Our working assumption is that Trump won't go ahead with

25% tariffs on his neighbors. However, a series of hawkish

comments followed by a last-minute deal would be a familiar

script, and we see downside risks for CAD and MXN before any

reassurance on tariffs arrives," said analysts at ING.

On the other hand, Thierry Wizman, Global FX & Rates

Strategist at Macquarie said, "with the contours of a broader

US-Mexico agreement coming into place perhaps earlier than

expected, and with formal negotiations over the tariff issue

too, we're getting more constructive on the MXN."

The Mexican peso and stocks were flat.

Data showed Mexico's headline inflation hit 3.74% in the first

half of February, in line with forecasts and still within the

central bank's 2% to 4% target range, supporting expectations

for another rate cut.

Most currencies in the region fell, led by a 0.5% drop in

Colombia's peso. The Brazilian real was down 0.3%.

Among stocks, Argentina's Merval index reversed

early gains and was last down 0.7%.

Brazil's Bovespa fell 1.2%, despite a 4.7% gain

in Brazil-listed shares of Azul after the airline

posted fourth-quarter core earnings slightly above market

expectations, while Mexico's Volaris dropped 11.2%

after its earnings report.

Colombia's COLCAP gained 1%, outperforming

peers.

Elsewhere, the Bank of Israel kept short-term interest rates

unchanged at 4.50%, as expected. The shekel edged down

0.2%, while stocks reversed early gains.

Citigroup upgraded both Indian and Chilean equities to

'overweight' from 'neutral.' The brokerage remains neutral on EM

equities in their global allocations, citing risks of volatility

on tariff news.

Meanwhile, Peru's economy minister said the country is

expected to be Latin America's second-fastest growing economy

this year, projected to grow at 4%.

The rouble rose 0.9% against the dollar as investors

continued to monitor discussions on the Russia-Ukraine war.

HIGHLIGHTS

** Ethiopia central bank holds $60 million foreign exchange

auction

** Rumble and Trump Media file motion in US court over

decision by Brazilian judge

** Hungary's Orban flags new legislation, crackdown on media

over 'foreign funding'

** China's Shimao secures creditor backing for $11 bln

offshore debt revamp

Key Latin American stock indexes and currencies at 1950 GMT:

MSCI Emerging Markets 1135.85 -1

MSCI LatAm 2051.53 -1.08

Brazil Bovespa 125563.7 -1.23

Mexico IPC 53750.75 0.02

Chile IPSA 7311.33 -0.01

Argentina Merval 2349129.5 -0.65

1

Colombia COLCAP 1646.6 0.98

Brazil real 5.7491 -0.3

Mexico peso 20.4182 -0.04

Chile peso 943.36 -0.11

Colombia peso 4112.5 -0.46

Peru sol 3.683 0.05

Argentina peso (interbank) 1060 -0.14

Argentina peso (parallel) 1220 0.82