* Latin American stocks up 3.9%, currencies up 1.4%

* Keiko Fujimori takes lead in Peru's presidential race

* Argentina's stocks at record high after S&P Global

upgrades credit rating

(Updates with afternoon levels)

By Avinash P and Ragini Mathur

June 11 (Reuters) - Peruvian stocks rose on Thursday after

market favorite Keiko Fujimori reclaimed a slender lead in a

closely watched presidential election, while broader Latin

American equities and currencies were buoyed by signs of a

potential Middle East peace deal.

Peru's presidential election remained in focus after

Fujimori, the conservative candidate, edged slightly ahead of

leftist rival Roberto Sanchez.

Fujimori now has a lead of just around 650 votes after about

18 million were counted, with 98.21% of polling stations having

reported, according to Peru's ONPE electoral authority.

The final result could be critical for the country's

markets. Fujimori has pledged to preserve Peru's

business-friendly policy framework, while Sanchez, who had

overtaken her earlier in the week, has promised reforms to the

country's mining-heavy economy.

Lima's stocks index gained 4%, on pace for

biggest one-day gain since late 2023. Peru's sol was

flat.

"Overall, market movements suggest that investors are

adjusting expectations as the probability of each candidate's

victory evolves, rather than pricing in a clear directional

outcome," said Pablo Nano, deputy head economist at Scotiabank.

U.S. DOLLAR EASES AS GEOPOLITICAL RISKS RECEDE

The dollar edged 0.4% lower, reflecting easing geopolitical

uncertainty after U.S. President Donald Trump called off planned

military strikes on Iran at the last minute and said

negotiations were moving toward a possible deal.

Still, BNY analyst Geoff Yu cautioned that "LatAm currencies

will need to monitor elevated short-term dollar preference."

Markets continued to adjust to expectations of a more

hawkish U.S. Federal Reserve, amid rising inflationary pressures

and resilient labor market conditions in the world's largest

economy.

"LatAm currencies are the most resilient group in this

context," Yu said. "But if the aim is to attract fresh inflows

to ease onshore financial conditions, regional central banks'

policy decisions may need to lean more hawkish."

The broader MSCI index of Latin American currencies

gained 1.4%, while the equivalent stocks gauge

was up 3.9%, on track for biggest single-day

gain since October 2022.

ARGENTINA RALLIES AFTER S&P UPGRADE

Argentina's stocks jumped 6.8% to record high, while

the peso strengthened 0.2% after credit ratings

agency S&P Global upgraded the country's long-term sovereign

credit ratings to 'B-' from 'CCC+'.

The agency cited Argentina's easing economic vulnerabilities

and gradually improving external liquidity. Peer Fitch had

upgraded its credit ratings for the country in May.

Separate data showed Argentina's monthly inflation slowed to

2.1% in May from 2.6% in April, coming in just below analysts'

expectations of 2.3%.

Brazil's stocks and the real gained 1.7%,

each. The largest Latin American country's services activity

rose more than expected in April from the previous month.

Key Latin American stock indexes and currencies:

Stock indexes Latest Daily % change

MSCI Emerging Markets 1670.82 0.23

MSCI LatAm 2975.29 3.92

Brazil Bovespa 171471.67 1.69

Mexico IPC 66973.79 3.32

Chile IPSA 10753.29 2.9

Argentina MerVal 3372951.32 6.97

Colombia COLCAP 2337.66 3.32

Currencies Latest Daily % change

Brazil real 5.0994 1.66

Mexico peso 17.2507 0.86

Chile peso 901.18 1.28

Colombia peso 3489.52 1.63

Peru sol 3.3982 -0.04

Argentina peso 1,430.5 0.21

(interbank)

Argentina peso (parallel) 1,430.0 1.38