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Brazil fiscal concerns hit sentiment, index slips 0.3%

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Argentina's assets volatile amid mixed signals from US

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Focus on Brazil-US trade negotiations

(Updates with afternoon prices, analyst comment)

By Niket Nishant, Johann M Cherian and Pranav Kashyap

Oct 16 (Reuters) - Latin American markets crept higher

on Thursday buoyed by growing hopes of U.S. rate cuts, even as

some volatility lingered, but Brazil stole the spotlight as

fiscal jitters and stalled tax reforms kept investors on edge

amid fresh trade developments.

A gauge tracking Latin American equities was

up 0.2%, while a parallel index tracking regional currencies

was flat against the dollar.

Colombia's peso surged to a near one-month high,

heading for its best day in over two months after the Senate

gave final approval to the government's massive 546.9 trillion

peso ($140.2 billion) 2026 budget. The move, which follows

earlier backing from the lower house, now awaits President

Gustavo Petro's signature - a step investors see as a signal of

fiscal direction amid lingering economic uncertainty.

Colombian stocks rose 0.3%.

Brazilian markets were volatile, with the benchmark index

slipping 0.2% and the real drifting as investors

weighed fresh fiscal plans after the Congress shelved a key tax

overhaul. A government proposal to offer financial guarantees

and tax incentives for strategic mineral projects added to the

mix.

However, confidence in markets has stabilized, following

last year's rout triggered by runaway spending and aggressive

rate hikes. Analysts note the country's 15% rate keeps the real

and local debt lucrative.

"The Brazilian government started to implement some budget

cuts at the beginning of the year, and then the president asked

for an extension of the budget," said Alfredo Coutino, director

for Latin America at Moody's Analytics.

"He's asking for even more... because next year is election

year and it is something that characterizes the Latin American

economy, at least in the past 50 years."

President Luiz Inacio Lula da Silva is also set to hold

negotiations with the U.S. on tariffs later on Thursday.

While easing hostilities in the Middle East and hopes of an

interest rate cut by the U.S. Fed have put the main MSCI indexes

on track for weekly gains, investors remain on edge as corporate

earnings season gets underway.

"The reason why markets are doing so well despite political

and geopolitical noise is that the macro backdrop is very good.

It's a good environment that supports risk taking," said Lilian

Chovin, head of asset allocation at Coutts.

Mexican stocks pared losses to jump 1.7%, while the

peso was flat.

Technology stocks were among the biggest gainers in the

country, with America Movil SAB jumping 5% after

reporting a more than threefold jump in third-quarter profit.

Argentina's markets wobbled, with the local stock index

up 1% and the wholesale peso falling 1.4% - a sharp

reversal after recent gains. The volatility came amid mixed

signals from Washington, even as the U.S. unveiled a $20 billion

currency swap framework to back President Javier Milei ahead of

a pivotal election.

"Most important point of this financial support is that it

helps to stop the uncertainty and to bring some relief to market

instability," Coutino said.

Meanwhile, U.S. President Donald Trump authorized the CIA to

conduct covert operations in Venezuela in a sharp escalation in

efforts to pressure President Nicolas Maduro's government.

Key Latin American stock indexes and currencies:

MSCI Emerging Markets 1378.08 0.91

MSCI LatAm 2474.19 0.20

Brazil Bovespa 142354.3 -0.17

Mexico IPC 62682.42 1.7

Argentina Merval 1932539.5 1.035

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Chile IPSA 9109.47 -0.04

Colombia COLCAP 1896.15 0.25

Brazil real 5.4454 0.17

Mexico peso 18.4306 0.03

Chile peso 955.5 0.37

Colombia peso 3838.5 1.32

Peru sol 3.3862 0.48

Argentina peso (interbank) 1401 -1.43

Argentina peso (parallel) 1445 0.35