* MSCI LatAm stocks down 0.3%, forex flat

* Brazil, Mexico rate decision later in the week

* Bolsonaro closes gap with Lula, poll finds

* Chile's economic activity returns to growth

(Updates to mid-session trading)

By Avinash P and Utkarsh Hathi

Aug 3 (Reuters) - Colombia's peso slid more than 2% and was

headed for its steepest decline in over a year on Monday, after

the nation's central bank surprised markets with an announcement

to build up its international reserves.

The Colombian central bank unexpectedly held rates on Friday

and announced a programme to buy up to $4 billion to boost

international reserves. The first auction is being held on

Monday with a quota of up to $400 million.

"The reserve-accumulation programme was arguably the

meeting's biggest surprise," said Andres Abadia, chief LatAm

economist at Pantheon Macroeconomics.

"The design makes clear that the objective is not to target

a particular exchange-rate level, but rather to rebuild external

buffers while taking advantage of periods of COP strength."

The peso dropped 2.4% but remains the strongest

performing currency in the region so far this year, buoyed by

hopes that business-friendly policies from the incoming

right-wing government under President-elect Abelardo de la

Espriella could help fix the country's deteriorating public

finances and rebuild confidence in the economy.

MSCI's index tracking Latin American currencies

was muted, but touched a record high earlier in

the session. Most currencies were mixed against the dollar.

A weaker dollar and relatively high interest rates have

attracted carry-trade inflows into the region's currencies,

helping them outperform broader emerging-market peers so far

this year.

Oil prices fell 4.7% after U.S. President Donald Trump

refrained from attacks on Iran over the weekend, and said talks

would take place on Monday, though Iran denied plans for any

meetings.

Equities in the resource-rich region slipped as weaker

commodity prices weighed on sentiment. The gauge tracking the

region's equities edged 0.3% lower.

Equities in Brazil slipped 0.2%, weighed by losses

in miner Vale that slipped 2.7%, as iron ore prices

slid for a seventh straight session on weak Chinese demand.

Investors are awaiting Brazil's central bank decision on

Wednesday, with economists polled by Reuters expecting a fourth

consecutive interest-rate cut. The Brazilian real was

subdued.

Manufacturing activity in the region's largest economy

contracted in July, data showed on Monday.

Political developments are also in focus in Latin America's

largest economy, after a poll showed right-wing Senator Flavio

Bolsonaro narrowing the gap with President Luiz Inacio Lula da

Silva ahead of the October presidential election.

An interest-rate decision from Mexico's central bank is also

expected later in the week. The Mexican peso firmed,

while its stocks declined 0.5%.

In Chile, economic activity returned to growth in June,

marking the first year-on-year increase in six months on

stronger mining, trade and services activity.

Chile's benchmark edged 0.1% lower, while its

currency gained 0.7%.

Argentina's benchmark and Colombian equities

dropped 0.5% and 0.4%, respectively.

Peru's sol firmed, hitting its strongest level in

more than a month.

Key Latin American stock indexes and currencies

Latin American market

prices from Reuters

Equities Latest Daily %

change

MSCI Emerging Markets 1651.22 -0.88

MSCI LatAm 3081.52 -0.28

Brazil Bovespa 177680.45 -0.18

Mexico IPC 66585.49 -0.53

Chile IPSA 11008.86 -0.07

Argentina Merval 3276363.1 -0.455

4

Colombia COLCAP 2381.76 -0.43

Currencies Latest Daily %

change

Brazil real 5.0861 -0.21

Mexico peso 17.3239 0.02

Chile peso 924.27 0.67

Colombia peso 3228.41 -2.43

Peru sol 3.3877 0.01

Argentina peso (interbank) 1494 -0.54

Argentina peso (parallel) 1535 1.63