EMERGING MARKETS-LatAm assets gain on commodity boost, risk-on mood

By Sudeshna Ghoshal, Ragini Mathur and Avinash P

Nov 11 (Reuters) - Most Latin American stocks and currencies rose on Wednesday as a rally in commodity prices and a broader return to risk-taking helped investors look past a stronger dollar and concerns over potential US interest rate hikes.

Investors were also awaiting MSCI's November index review for possible stock deletions and weight cuts in Indonesia later in the day.

The index provider warned last month it could downgrade the Southeast Asian nation from emerging-market to "standalone" status. However, a broader review of Jakarta's emerging-market status is not due until next year.

In Brazil, the government will propose new mechanisms to allow deeper spending curbs than currently required under its fiscal rules, Planning Minister Bruno Moretti said.

President Luiz Inacio Lula da Silva's reelection in October had triggered a sharp selloff in Brazilian assets as investors worried about the administration's ability to deliver sufficient fiscal discipline to stabilize public debt.

The real rose 0.4% on Wednesday, while the Bovespa .BVSP gained 0.6%, with losses in state-run oil firm Petrobras capping the rise after the company missed its third-quarter profit expectations.

Brazil's central bank said on Tuesday that slowing growth could help contain the inflationary effects of recent supply shocks, reinforcing expectations that policymakers may keep interest rates unchanged despite a worsening price outlook.

"Looking at the start of the past four easing cycles suggests policymakers will only cut the Selic rate once inflation expectations have fallen materially," said William Jackson, chief emerging markets economist at Capital Economics.

"The tried-and-tested way of achieving that in Brazil's recent history is through credible fiscal reforms that improve public finances."

MSCI's Latin America equity index .MILA00000PUS climbed about 0.7%, while the regional currency index .MILA00000CUS added 0.6% after hitting a seven-month low on Tuesday.

The previous session's losses followed a hotter-than-expected US inflation report, which bolstered expectations that the Federal Reserve could hike interest rates again in the near term.

The dollar extended its advance, reaching a four-week high.

While a stronger dollar typically pressures emerging-market assets, Latin American markets drew support from rising oil and metals prices, as well as a broader risk-on tone fueled by renewed optimism over AI-related trades. O/RGOL/

Colombian stocks bucked the regional trend, with the equity benchmark .COLCAP falling 2% as concerns over the country's deteriorating finances lingered while the government sought a large lending arrangement with the International Monetary Fund.

"Attention now shifts to whether the government can preserve enough of the adjustment to support fiscal credibility and the ongoing IMF discussions, as the main risk is not outright rejection but a diluted package that leaves a larger financing gap for 2027," Citi analysts said in a note.

Mexican stocks .MXX hit a record high, rising 0.2%, while the peso was muted.

Data showed industrial activity declined more than expected in September, marking its weakest performance since October 2024 as construction and manufacturing weakened.

Key Latin American stock indexes and currencies at 1950 GMT: