(Updates to mid-session trading)

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Markets await Brazilian central bank's policy decision

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Mexico's Sheinbaum does not see tariffs coming on Feb. 1

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Chile's central bank keeps rates on hold

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Peru plans bond sales, Reuters report says

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MSCI's Latin American currencies up 0.1%, stocks down 0.1%

By Purvi Agarwal, Johann M Cherian

Jan 29 (Reuters) -

Indexes tracking Latin American currencies and stocks struggled for direction on Wednesday after the U.S. Federal Reserve left its benchmark interest rate unchanged, while investors braced for U.S. tariffs and a monetary policy decision in Brazil.

The Fed held its policy rate in the 4.25%-4.50% range and

offered little insight

into when further reductions in borrowing costs may take place, adding to uncertainty for central banks across emerging markets.

MSCI's gauge of Latin American currencies was last up 0.1% against a stronger U.S. dollar, while an index tracking equities in the region dipped 0.1%.

Financial markets also are awaiting the Brazilian central bank's latest policy decision on Wednesday, with economists forecasting it will hike its key interest rate by a 100 basis points to 13.25% against a backdrop of worsening inflation.

The Brazilian central bank's policy decision will be the first under the leadership of Gabriel Galipolo, President Luiz Inacio Lula da Silva's choice to head the central bank.

The real slipped 0.1% on Wednesday, while the local Bovespa equities index declined 0.2%. The yields on the 5-year and 10-year sovereign bonds ticked up by four and seven bps, respectively.

"A signal of further rate hikes is likely, but the BRL's risk lies in a probable recurrence of fiscal concerns in 2025, not monetary policy," Thierry Wizman, global FX and interest rates strategist at Macquarie, said in a note.

Risk sentiment was broadly fragile as markets waited to see whether U.S. President Donald Trump will carry out a threat to impose tariffs on Mexico and Canada on Feb. 1.

Mexico's peso, among the most exposed to possible U.S. tariffs, was last flat in volatile trading, while the local stock index dropped 0.3%.

Mexican President Claudia Sheinbaum said she did not believe the U.S. would impose tariffs on Mexico on Feb. 1, after a White House spokesperson said Trump still planned to meet that deadline.

Threatened tariffs and the prospect of higher-for-longer rates in the U.S. have pressured demand for certain emerging market assets since last year, adding to concerns over an uncertain global growth outlook.

Colombia's peso appreciated 1%, rebounding after two-straight days of declines, after the country came to the brink of a trade war with the U.S. The local COLCAP equities index rose 1.8%.

The Chilean peso gained 0.4%, while the country's stock index added 0.7% after the central bank held its benchmark interest rate at 5% on Tuesday.

The Peruvian sol was 0.5% higher. Reuters reported that the country plans to issue up to three sovereign bonds this year to finance its ballooning fiscal deficit.

Meanwhile, Argentina's deregulation tsar Federico Sturzenegger plans deeper cuts this year. The country's stock index was up 3.8%.

Key Latin American stock

indexes and currencies

Stock indexes

Latest Daily % change

MSCI Emerging Markets 1090.49 0.12

MSCI LatAm 1994.44 -0.07

Brazil Bovespa 123773.42 -0.23

Mexico IPC 51397.71 -0.27

Chile IPSA 7088.79 0.75

Argentina MerVal 2528439.78 3.81

Colombia COLCAP 1501.01 1.83

Currencies Latest Daily % change

Brazil real 5.8663 -0.16

Mexico peso 20.5366 -0.02

Chile peso 989.93 0.38

Colombia peso 4172.5 1.09

Peru sol 3.714 0.54

Argentina peso (interbank) 1,051.0 -0.05

Argentina peso (parallel) 1,200.0 2.44