EMERGING MARKETS-LatAm assets mixed as elevated bond yields counter soft inflation; Fed hike odds fade

By Utkarsh Hathi and Mehnaz Yasmin

Sept 30 (Reuters) - Most Latin American assets were mixed on Wednesday as markets assessed the impact of elevated bond yields, while US economic data showed easing inflation and assuaged immediate interest rate hike fears.

US inflation increased less than expected in August and price pressures were more moderate in the prior month than previously reported, prompting markets to ease bets on US interest rate hikes next month.

"Today's data delivers a goldilocks combination. The net effect is broadly supportive of risk assets and materially reduces the probability of an October rate hike, while keeping a Q4 hike on the table," said Chris Osmond, chief investment officer for Fifth Third Wealth Advisors.

Traders are now pricing in a roughly 37% chance of a rate hike in October, down from about 45% before the data, according to CME Group's FedWatch tool.

The US dollar index reversed course to inch higher, hovering near a two-month high hit recently. The yield on the 10-year US Treasury continued gaining, last at 5.297%.

MSCI's index tracking Latin American equities .MILA00000PUS advanced 1.1%. Its currency equivalent .MILA00000CUS edged 0.5% higher, set to snap a six-day losing streak.

The currency benchmark is on course for a seventh straight quarter of gains, the longest such streak since at least April 2009, per LSEG data.

COLOMBIA RATE HIKE SURPRISE:

The Colombian central bank raised benchmark interest rates by 25 basis points to 12.25% in a surprise move.

Colombia's peso rose the most among its peers, up 1.4%, while the benchmark stock index .COLCAP slipped 0.2%.

Meanwhile, the national unemployment rate stood at 9.4%, above the 8.6% reported for July 2025, government statistics agency DANE said.

BRAZIL ELECTION IN FOCUS:

In Brazil, investors remain cautious ahead of the first round of voting in the presidential election taking place on October 4, limiting the scope for a broader rally.

"While our baseline remains a Lula (President Luiz Inacio Lula da Silva) victory, recent polling and market pricing suggest momentum may be shifting toward Bolsonaro," according to a Societe Generale note on Wednesday.

The real strengthened 0.6% against the greenback, while its equities .BVSP gained 1.6%. Financials rose sharply, with Itau Unibanco up 5.3% and Bradesco up 4.2%.

Meanwhile, China's commerce ministry said on Wednesday that it will start collecting an additional 55% tariff on Brazil's beef shipments from October 1, after the world's biggest beef exporter reached its annual quota of 1.1 million metric tons.

Separately, Brazil said it will establish a working group to discuss issues related to a potential agreement on trade with the US.

The Mexican peso declined 0.2%, reversing prior gains and remained on track for its worst month since June 2024 with a 6.4% fall. It also eyed its first quarterly loss in seven.

In Chile, the unemployment rate hit its highest level in more than five years in the quarter through August, statistics agency INE said on Wednesday.

The Chilean peso was little changed, but was on track for its steepest quarterly fall in seven quarters. Its stocks .MICL00000PUS fell 0.9% to their lowest in three months, reversing earlier gains from earlier in the session.

Elsewhere, ratings agency Fitch affirmed Paraguay's sovereign rating at BB+ and assigned a positive outlook, citing strong growth performance and prospects tied to a robust investment pipeline.

Key Latin American stock indexes and currencies at 1953 GMT