By Bruno Federowski SAO PAULO, Aug 29 (Reuters) - The Chilean peso on Tuesday hit the strongest level in over two years as prices of copper soared, lifted by falling global inventories of the base metal, a key Chilean export.
Benchmark copper futures touched levels last seen in September 2014, extending the previous week's gains.
Also helping underpin the copper rally was a depreciation of the dollar against a basket of major currencies after North Korea launched a missile that flew over northern Japan, fueling global risk aversion.
A weaker greenback generally makes dollar-priced metals cheaper for non-U.S. investors, boosting demand.
The Chilean peso strengthened 0.5 percent to 625 per dollar, leading gains among currencies in Latin America.
"We may start to see technical corrections toward 640, but in general barring a copper collapse, the peso is heading for an under-650 closing for the year," 4Cast strategists wrote in a client note.
The stronger peso fostered expectations of downward pressure on inflation, fueling bets that the central bank will further cut interest rates over the coming months.
Other regional currencies seesawed as escalating geopolitical tensions kept investors at bay.
The Mexican peso slipped about 0.2 percent, but traders refrained from pushing it even lower following its biggest loss since April on Monday.
In Brazil, the real dipped while the benchmark Bovespa stock index was near flat.
Shares of Centrais Elétricas Brasileiras SA were the biggest decliners as traders booked profits after a recent rally triggered by a plan to privatize the state-controlled power utility.
Rising shares of power utility Cia Energética de Minas Gerais SA helped to offset that pressure as it took further steps to sell its stake in Light SA.
Key Latin American stock indexes and currencies at 1720 GMT: Stock indexes Latest Daily YTD pct pct change change MSCI Emerging Markets 1,081.44 -0.34 25.84 MSCI LatAm 2,866.67 -0.44 23.01 Brazil Bovespa 71,051.98 0.05 17.97 Mexico S&P/BVM IPC 51,226.60 -0.08 12.23 Chile IPSA 5,155.79 -0.3 24.19 Chile IGPA 25,734.57 -0.28 24.12 Argentina MerVal 23,432.35 -0.21 38.51 Colombia IGBC 10,906.58 0.11 7.69 Venezuela IBC 211,166.19 2.17 566.03 Currencies Latest Daily YTD pct pct change change Brazil real 3.1691 -0.23 2.53 Mexico peso 17.9045 -0.18 15.86 Chile peso 625.15 0.53 7.29 Colombia peso 2,945.23 0.04 1.91 Peru sol 3.242 -0.12 5.31 Argentina peso (interbank) 17.3400 -0.61 -8.45 Argentina peso (parallel) 18.26 0.27 -7.89 (Reporting by Bruno Federowski, editing by G Crosse)