To The Moon

Corrects typo in economist's name in paragraph 9

By Twesha Dikshit

March 20 (Reuters) - Latin American equities tumbled to two-month lows on Friday as the war in the Middle East showed no sign of ending, raising concerns about inflation and the monetary policy outlook.

The U.S.-Israeli war on Iran has expanded to include attacks on energy infrastructure in the Middle East, upending markets and sending oil prices soaring as supply fears mount.

In further escalation, thousands of additional U.S. troops are set to be deployed in the Middle East, three officials told Reuters.

However, oil prices were lower after the U.S. and its allies offered to join efforts to secure passage through the vital Strait of Hormuz and boost global oil supply.

The MSCI's Latin American stocks index .MILA00000PUS fell 2.3%, while a corresponding currencies index .MILA00000CUS edged down 0.7%. Equities were on track for a fourth week of losses, their longest losing streak since December 2024.

In a packed week of central bank meetings, markets also scrutinized the economic outlook and rate-cut expectations, with most policymakers opting to hold rates steady, while being on alert to tighten policy to deal with inflation, if needed.

Brazil's Copom was an exception, kicking off its easing cycle with a lower-than-expected 25-bps rate cut, but further lowering could stall if the Middle East war drives inflation higher.

Capital Economics said it expected room for further easing in Brazil due to its current extremely tight monetary stance.

"Central bank meetings in Mexico and Chile next week should give us a broader steer on the implications of the energy price spike on monetary policy across the region," said Kimberley Sperrfechter, Capital Economics' emerging markets economist.

LATAM ASSETS UNDER PRESSURE, LOCAL DEVELOPMENTS EYED

Brazil's benchmark index .BVSP dropped 1.7%, while the real BRL= lost 1.5% against the dollar. Former Finance Minister Fernando Haddad said President Lula da Silva was yet to choose candidates for two vacant seats on the central bank's board.

Colombia's President Gustavo Petro is under criminal investigation by at least two U.S. federal prosecutors' offices, the New York Times reported, citing people familiar with the matter. The blue-chip index .COLCAP was down 0.3%, while the peso COP= was off 1.3%.

Stocks in Mexico .MXX fell 1.7%, while the peso MXN= weakened 1.2%. Official preliminary data showed the country's economy likely expanded 1.2% in February from a year ago.

China's commerce ministry said it would release the final conclusions of a trade probe launched in September into Mexico's restrictive measures against Beijing.

Peru's shares .MXNUAMPESCPGPE slipped almost 1%, while the Chilean peso CLP= dropped 1.3%.

Energy ministers and mining unions in Peru urged lawmakers to scrap a proposal to halve the time allowed to start production on mining concessions, flagging it could fuel illegal mining and reduce investment.

Argentinian shares .MERV were a bright spot, rising marginally. The IMF said on Thursday the country's economy was so far weathering the economic impact of the war, with its shift from net energy importer in 2022 to net exporter shielding it from shocks.

Elsewhere in EM, the Russian central bank cut its key rate by 50 basis points as widely expected, citing slower inflation, but flagged increasing uncertainty due to the Middle East conflict.

Key Latin American stock indexes and currencies at 14:52 GMT:

(Reporting by Twesha Dikshit; Editing by Pooja Desai)

((Twesha.Dikshit@thomsonreuters.com;))