(Recasts throughout, updates prices) By Susan Mathew March 22 (Reuters) - Latin American stocks and currencies were hammered on Friday, caught up in a global selloff after dismal economic data from across Europe and the United States reignited fears of a slowdown in the global economy and signaled the possibility of the world's largest economy sliding into recession.
An inversion of the U.S. Treasury yield curve after weaker-than-expected manufacturing data suggested that the economy could be headed for recession, worsening risk aversion already sparked by similar data from Germany and other economies in the European Union.
MSCI's index of Latin American stocks slid by 4.3 percent, while its regional currency index dropped 1.8 percent, both logging their biggest one-day losses since May 2017. On the week, the stock index shed close to 5 percent.
The weak manufacturing readings led to the dollar strengthening compared with emerging currencies as it aggravated worries about a global slowdown, and weighed on emerging market sentiment in general, said Inan Demir, senior emerging market economist at Nomura in London.
Analysts also pointed to cautiousness amid uncertainty around Brexit and U.S.-China trade tensions.
Mexican stocks fell 2.3 percent, while the peso eased 1.3 percent, with the currency being further hurt by the likelihood of a rate cut by the central bank as data showed Mexico's annual inflation slowed in the first half of March.
The country's Finance Minister Carlos Urzua saying the finance ministry is exploring possibilities to reduce the costly refinancing of ailing state oil company Pemex's debt this year, including dipping into a budget stabilization fund, did little to cheer the market.
Brazil shares dropped 3.1 percent to extend losses to a fourth session with all key sectors in the red, taking weekly losses to 5.6 percent. The currency tumbled almost 3 percent on the day.
Brazilian markets were hit on Thursday by the arrest of former president Michel Temer on graft charges as it threatened to take official focus away from crucial fiscal reforms. An Ibope poll earlier this week also showed plunging support for the current government.
Analysts at XP Investments wrote that while they remain optimistic about the progress in passing reforms, they "anticipate volatility, with a tough negotiation process ahead for pension reform, and a series of risks that can increase tension." In Argentina, stocks sank 3.7 percent, while the peso slid 2 percent and lost more than 4 percent on the week. Chile's peso hit a more than 10-week low.
Colombian stocks broke a nine-day winning streak to post their biggest one-day drop in three months. The currency weakened 1.4 percent. Colombia's central bank on Friday stood pat on rates as expected.
Nomura's Demir said that an over 5 percent dive in the Turkish lira may also have spilled into weakness among emerging markets currencies. The lira was on track for its biggest daily fall since a currency crisis took hold in August.
Key Latin American stock indexes and currencies at 2100 GMT: Stock indexes Latest Daily pct change MSCI Emerging Markets 1,059.63 -0.94 MSCI LatAm 2,712.96 -4.31 Brazil Bovespa 93,735.15 -3.1 Mexico IPC 42,259.12 -2.29 Chile IPSA 5,209.98 -0.98 Argentina MerVal 32,908.06 -3.74 Colombia IGBC 13,069.14 -2.25 Currencies Latest Daily pct change Brazil real 3.9066 -2.9 Mexico peso 19.0855 -1.256 Chile peso 679.51 -1.49 Colombia peso 3,129.3 -1.36 Peru sol 3.299 -0.36 Argentina peso 41.740 -2.04 (interbank) (Reporting by Susan Mathew in Bengaluru, Karin Strohecker in London and Laís Martins in Sao Paulo;)