EMERGING MARKETS-LatAm stocks higher, FX mixed as markets optimistic on US-Iran talks

By Utkarsh Hathi and Purvi Agarwal

Sept 22 (Reuters) - Most Latin American stocks rose on Tuesday as a drop in oil prices below $100 improved global risk sentiment, though currencies broadly depreciated as investors awaited developments in the Iran conflict.

Brent crude futures settled down 1%, dropping to their lowest in two weeks on signs of easing supply risks after Iran offered to reopen the Strait of Hormuz if US military pressure decreases, and reports indicated that Saudi Arabia has restarted its East-West oil pipeline. O/R

US President Donald Trump, at the United Nations General Assembly, said Washington and Tehran were moving toward a settlement, but warned he could "annihilate" Iran if no deal was reached.

Still, markets drew comfort that the seven-month war could come to an end soon, easing oil prices and in turn, inflation expectations, government bond yields and interest rates.

"The direction of crude oil prices still bears on what happens to inflation and the decisions taken by central banks in response," said Thierry Wizman, global FX and rates strategist at Macquarie Group.

"It also matters for FX. US growth and the US dollar benefit from high crude oil prices through a positive terms-of-trade, a resulting real income effect, and a supply effect."

MSCI's index tracking LatAm equities .MILA00000PUS rose 0.9%, reversing earlier declines. Its currency equivalent .MILA00000CUS was down 0.1%.

Mexican stocks .MXX were among the top gainers, up 1.4% and set for their biggest daily jump in a month. Miner Grupo Mexico GMEXICOB.MX gained 3.4%.

Its peso , however, depreciated 0.4% on expectations that the central bank will keep its interest rate unchanged for the third consecutive meeting this week, despite a rise in U.S. borrowing costs.

Mexico's economy, the region's second largest, likely expanded 2.5% in August year-on-year, a preliminary estimate showed on Tuesday, while retail sales in the country declined 0.1% in July from June.

Brazil's benchmark index Ibovespa .BVSP gained 0.5%, and the real edged 0.1% higher.

Brazil's central bank said on Tuesday trends in non-earmarked lending were consistent with a slowdown in economic growth, as tight monetary policy continued to restrain activity in Latin America's largest economy.

With earnings season yet to begin and the outcome of the country's October presidential election still uncertain, investors expect geopolitical developments and commodity prices to determine the sentiment.

"With the Fed entering a tightening cycle and the Middle East conflict weighing on oil prices, commodities and foreign exchange prices will remain key drivers for the region's markets until we see some clarity from elections later," said Michael Dehal, senior portfolio manager, Dehal Investment Partners at Raymond James.

Chile's peso rose 0.3%, as copper prices gained for a sixth consecutive session. Peruvian stocks .MXNUAMPESCPGPE were the biggest gainers in the region, up 1.9%.

Among other developments, Argentina has been seeking to renegotiate a trade deal previously signed with the US, efforts which Trump's policymakers have pushed back upon, Bloomberg News reported on Tuesday.

Key Latin American stock indexes and currencies at 19:53 GMT