EMERGING MARKETS-Mexico's peso leads Latin American currencies higher; focus on Brazil election

By Johann M Cherian

Oct 12 (Reuters) - Mexico's peso led gains among major Latin American currencies on Monday, tracking higher oil and base metal prices, while investors monitored developments in Brazil ahead of the pivotal October 25 presidential runoff election.

MSCI's index tracking LatAm currencies inched up 0.2% versus the dollar, while a parallel gauge tracking stocks in the region .MILA00000PUS was broadly flat.

The currency of the region's second-largest economy rose 0.9% to 18.26 per dollar, as prices of crude oil , a key export from Mexico, rose more than 2% to $107 a barrel. The local equities benchmark .MXX inched up 0.3%.

Earlier in the day, a diesel export deal between the US and Russia, alongside an energy infrastructure ceasefire between Moscow and Kyiv, announced by the Trump administration, helped temper the rise in prices.

However, those were offset by concerns about repercussions for supply out of the Middle East following Houthi attacks on energy giant Saudi Arabia, along with strikes on oil tankers from the region.

Despite the surge in oil prices this year, the Mexican peso has fallen 1.4%. It has underperformed compared with the currencies of its major oil-exporting peers in the region, such as the Brazilian real and the Colombian peso . The real is up nearly 10%, while Colombia's peso has risen 19%.

Uncertainty around the United States-Mexico-Canada Agreement and whether US President Donald Trump will return to the trade talks after the US midterm elections in November could cause the Mexican peso to underperform, Chris Turner, the global head of markets and regional head of research for UK & CEE at ING, said in a note.

Investors also assessed data showing Mexico's industrial output rose 0.6% in August from the previous month and was 3.5% higher on a year-over-year basis, the national statistics agency said.

Meanwhile, Peru's sol was steady at 3.4 per dollar ahead of the country's gross domestic product data for August, which is due later this week.

BRAZIL'S ELECTION RUNOFF

Global investors were also keeping a close eye on Brazil as leftist President Luiz Inacio Lula da Silva and his right-wing challenger, Senator Flavio Bolsonaro, rallied supporters ahead of their October 25 election runoff.

Markets in Brazil, Colombia, Chile and Argentina were closed for public holidays.

Elsewhere, China placed sanctions on Paraguay's communications minister and the foreign minister of Belize over their countries' ties with Taiwan.

India's retail inflation accelerated to a higher-than-expected 5.54% in September, data showed, nearing the central bank's 6% ceiling and strengthening the case for further interest rate hikes as the Iran war and a weak monsoon drive price pressures.

The rupee ended more than 1% higher after the local central bank announced a set of measures that sharply raised the cost of buying dollars as a hedge against the currency's slide.