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EMERGING MARKETS-Latam FX firms, Mexican peso claws back some ground

By Aaron Saldanha

(Recasts with Latin American currencies; updates prices; adds market strategists' quote) By Aaron Saldanha June 4 (Reuters) - Latin American currencies firmed on Tuesday against a softer dollar, and Mexico's peso outperformed most regional peers, after U.S. Federal Reserve Chairman Jerome Powell alluded to the possibility of cutting borrowing costs. Stocks across Latin America gained modestly. Powell said the Fed will respond "as appropriate" to trade and other headwinds and that it was "closely monitoring the implications" of the trade dispute. A rate cut, if delivered, would greatly support developing world assets. MSCI's index of Latin American currencies gained 1.2%, while its Latin American stocks index rose 1.3%. Assets in Mexico found support as the perceived likelihood of U.S. President Donald Trump's threat to slap tariffs on the country dimmed. U.S. Senate majority leader Mitch McConnell said there was "not much support" among other Republicans for the tariffs. "The two countries can resolve the issue, in our view," Dirk Willer, head of emerging market strategy at Citi Research, and Kenneth Lam, an emerging markets FX strategist, wrote in a note. Wednesday's meeting between Mexico's foreign minister, Marcelo Ebrard, and U.S. Secretary of State Mike Pompeo "will be very important, and we believe that it will be an amicable meeting." Mexico's peso surged 1.2%, set for its best day since early 2019, while stocks edged up as gains among financials were largely negated by losses in industrials. Yields on local Mexican 10-year bonds fell 7 basis points to 8.01%, while the spread - or surplus yield - between those bonds and their U.S. peers distanced itself from the 4-1/2 month-peak hit on Monday. Brazil's real firmed 0.8%, as comments made by Economy Minister Paulo Guedes fanned optimism among investors. Guedes said the government will press ahead on a number of fronts, including pension reform and privatizations, to fill the fiscal "black hole." Brazilian stocks rose 0.2%, aided by gains among financials, consumer staples and energy stocks. Common shares and preferred shares of state-run oil firm Petroleo Brasileiro SA (Petrobras) rose 0.4% and 0.6%, respectively, helped by a 1.1% rise in Brent crude futures. Argentina's stocks tacked on 1.9%, while the peso firmed 0.5%. Chile's peso rose 1.4%, outpacing a rise in the price of copper, the country's top export. Colombia's peso strengthened 2.6%, while stocks rose 0.6%. Energy firm Ecopetrol SA rose 1.8%, aided by strong oil futures. Latin American stock indexes and currencies at 1904 GMT Stock indexes daily % Latest change MSCI Emerging Markets 1006.42 -0.19 MSCI LatAm 2728.89 1.34 Brazil Bovespa 97186.85 0.17 Mexico IPC 43134.82 0.06 Chile IPSA 5017.18 0.07 Argentina MerVal 34400.47 1.88 Colombia IGBC 12131.06 0.63 Currencies daily % change Latest Brazil real 3.8553 0.86 Mexico peso 19.5470 1.14 Chile peso 693.1 1.23 Colombia peso 3290.33 2.49 Peru sol 3.348 0.36 Argentina peso (interbank) 44.7000 0.45 ($1 = 3.8523 reais) (Reporting by Aaron Saldanha in Bengaluru Editing by Leslie Adler)