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EMERGING MARKETS-Latam shares rally on trade optimism

(Recasts throughout, updates prices) By Susan Mathew Jan 18 (Reuters) - Latin American stocks rallied sharply on Friday, with Brazil shares hitting yet another record high and Argentine stocks rising more than 2 percent, as equities around the world were cheered by the possibility of the China-U.S. trade conflict ending.

The latest boost in sentiment came after a report on Thursday that U.S. Treasury Secretary Steven Mnuchin was considering lifting some or all tariffs imposed on Chinese imports. The Treasury denied Mnuchin had made any such recommendation.

"Any evidence that the U.S. and China are close to a trade agreement will result in a sustained higher movement in risky assets," said Jasper Lawler, head of research at the London Capital Group.

The bruising tariff war between the world's two largest economies hurt markets across the globe last year and has contributed to the slowdown in global growth.

The MSCI index of Latin American shares renewed its eight month peak hit last session and logged its fourth straight week of gains.

Brazil shares rose 0.8 percent to 96,096.75, extending its record-hitting streak. The Bovespa has scaled new peaks on most days this year boosted by optimism regarding the reform agenda of the new government.

State power company Eletrobras was among the top gainers after it revealed cost saving plans, while higher commodity prices bolstered material stocks.

Stocks in Argentina rose 0.7 percent and touched their highest level in over a year.

The country's economy minister Nicolas Dujovne said Argentina outperformed its 2018 primary fiscal deficit target set by the International Monetary Fund, keeping its $56.3 billion financing agreement with the IMF on track.

Among currencies, Brazil's real struggled to hold gains against a stronger dollar and ended the week lower for the first time in five weeks.

The Mexican peso weakened 0.4 percent, but posted gains for the eight straight week.

Analysts, however, are increasingly turning bearish on the peso as they weigh risks from the policies of the new government - the latest being the closure of key gasoline and diesel pipelines.

"Whether this is the right strategy seems highly doubtful," said Commerzbank analysts regarding the pipeline closures. "The Mexican economy is now struggling with supply bottlenecks and it is not clear when this situation will end. In this respect, the effects on the economy and inflation are also unclear." Meanwhile, Morgan Stanley analysts warn of risks associated with markets pricing in a more dovish stance by the central bank in the medium term stemming from the new Bank of Mexico board composition.

"MXN's recent out-performance is owed mainly to the fact that Banxico has been one of the more proactive central banks in terms of monetary tightening." "Any shift away from prioritizing price and financial stability over growth could have an important effect on some nominal variables (particularly MXN)," they said.

Bucking the trend, the Argentine peso and the Colombian peso rose, the latter helped by soaring oil prices.

Key Latin American stock indexes and currencies at 2127 GMT: Stock indexes Latest Daily pct change MSCI Emerging Markets 1017.99 0.89 MSCI LatAm 2868.78 1.19 Brazil Bovespa 96096.75 0.78 Mexico IPC 44256.50 0.74 Chile IPSA 5479.04 0.79 Argentina MerVal 35100.45 2.44 Colombia IGBC 11647.90 0 Currencies Latest Daily pct change Brazil real 3.7510 0.10 Mexico peso 19.0897 -0.41 Chile peso 669.82 0.01 Colombia peso 3121 0.30 Peru sol 3.319 0.18 Argentina peso 37.5600 0.40 (interbank) (Reporting by Susan Mathew in Bengaluru; Additional reporting by Paula Arend Laier in Sao Paulo; Editing by Sandra Maler)