EMERGING MARKETS-Argentine peso steadies on capital controls, broader Latam hit by trade woes

(Updates with closing price) By Sruthi Shankar Sept 2 (Reuters) - The Argentine peso steadied and the Merval stock index jumped on Monday as the country imposed capital controls to stem losses in the currency, outperforming its Latin American peers held back by worries over new U.S.-China tariffs. The peso closed up 0.88% at 59 per dollar in official trading after the government authorized currency controls on Sunday, an about-face by President Mauricio Macri, who had previously lifted many protectionist practices of his predecessor, Cristina Fernandez de Kirchner. The peso fell about 0.79% in black market trading, underscoring a loss of trust in the official price, while Argentine dollar bonds and euro-denominated bonds slumped to new lows. However, its benchmark stocks index rose more than 6% to record its biggest percentage gain in nearly three weeks. The central bank is now authorized to restrict purchases of dollars as it burns through reserves to prop up the peso, which fell nearly 5% in the opening hours of trading, but staged a turnaround. The controls followed the peso's drop in August to its worst month on record after Standard & Poor's, Fitch and Moody's downgraded Argentina's debt, citing growing risks of a default after the government announced plans to "re-profile" some $100 billion in debt. "On ARS, it appears that authorities will keep it stable now. Capital controls are not necessarily FX negative, but liquidity disappears," Citi's Dirk Willer wrote in a client note. "Clearly local markets have become uninvestable again. Index providers are also likely to take note." The peso has been battered since Macri suffered a thumping defeat in primaries at the hands of Alberto Fernandez, on fears that the return of a leftist government could herald a new era of interventionist policies. MSCI's index of Latin American stocks shed over 1% with stocks in Mexico leading losses after a survey showed activity in the country's manufacturing sector shrank for a third consecutive month in August. Brazilian shares edged lower and the real dropped 0.8% despite upbeat factory activity numbers and a slightly higher-than-expected trade surplus in August. The sentiment was fragile as the United States began imposing 15% tariffs on a variety of Chinese goods on Sunday and China retaliated by setting duties on U.S. crude oil. With U.S. markets closed for holiday, trading volumes were thin across the board. Key Latin American stock indexes and currencies at 1914 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 981.93 -0.24 MSCI LatAm 2563.32 -1.44 Brazil Bovespa 100819.97 -0.31 Mexico IPC 42175.33 -1.05 Chile IPSA 4769.72 -0.72 Argentina MerVal 26103.55 6.075 Colombia IGBC 12625.96 -0.1 Currencies Latest Daily % change Brazil real 4.1795 -0.91 Mexico peso 20.1483 -0.45 Chile peso 724.8 -0.46 Colombia peso 3437.65 0.06 Peru sol 3.405 -0.53 Argentina peso 57.5000 3.51 (interbank) (Reporting by Sruthi Shankar and Agamoni Ghosh in Bengaluru; Editing by Richard Chang)