(Recasts, updates prices, adds market strategist quote) By Aaron Saldanha May 28 (Reuters) - Most Latin American currencies softened against the dollar on Tuesday as fears over the U.S.-China trade war cast a pall on risk sentiment, while a Latin American stocks index rose, underpinned by gains in Brazil.
U.S. President Donald Trump said on Monday he was not ready to make a trade deal with China, but expected one in the future. The dollar firmed against a basket of currencies on Tuesday, lifted by trade and political worries.
MSCI's Latin American currencies index dipped 0.4%, while its Latin American stocks index was up 0.2% as stocks in index heavyweight Brazil rose.
Brazilian assets were outliers to the regional norm on the increased likelihood a decree to revamp Brazil's executive branch will pass.
President Jair Bolsonaro convinced his party to vote for the decree, averting a potential crisis that had sown doubt about his ability to obtain congressional backing he needs to push through legislation.
The real firmed 0.6%, while yields on local 10-year bonds dipped 2 basis points to 8.78%.
"We've seen the currency become more sensitive to interest rate differentials than it has been over the last couple of months," said Christian Lawrence, senior market strategist at Rabobank.
"It's become more sensitive to data releases, but that's really via the channel of interest rates where we've certainly seen correlation between the currency and interest rates rise quite markedly in recent sessions." The Bovespa index rose 1.3% on broad-based gains.
Petroleo Brasileiro SA's (Petrobras) common shares and preferred shares rose 0.5% and 1.1%, respectively.
The state-run oil firm is nearing the sale of two oilfields in a process that could fetch around $1 billion and has set a June 5 deadline to receive final binding offers, two sources said.
Rodrigo Maia, the speaker of Brazil's lower house, said he is negotiating additional clauses to a bill in Congress to solve the so-called transfer-of-rights issue with Petrobras.
The Mexican peso softened 0.6%, while stocks edged up.
Chile's peso slumped 1.5%, set for its weakest closing level since February 2016, falling prey to the stronger greenback. Chile will be hit by a worsening U.S.-China trade war as it is a major exporter of copper.
Argentina's stocks fell 2.4%, while the peso firmed about 0.9% to levels last seen nearly a week ago.
Latin American stock indexes and currencies at 1940 GMT Stock indexes daily % Latest change MSCI Emerging Markets 987.31 -0.19 MSCI LatAm 2614.13 0.21 Brazil Bovespa 96064.52 1.27 Mexico IPC 42541.24 0.12 Chile IPSA 4848.89 -0.03 Argentina MerVal 34616.58 -2.35 Colombia IGBC 11875.48 -1.47 Currencies daily % change Latest Brazil real 4.0204 0.36 Mexico peso 19.1770 -0.65 Chile peso 707 -1.20 Colombia peso 3371.86 -0.43 Peru sol 3.353 -0.03 Argentina peso (interbank) 44.6750 0.73 (Reporting by Aaron Saldanha and Susan Mathew in Bengaluru; Editing by Dan Grebler)