EMERGING MARKETS-LatAm FX edge higher with focus on Brazil polls

By Sudeshna Ghoshal and Johann M Cherian

Oct 19 (Reuters) - Most Latin American currencies inched higher on Monday, as a dip in oil prices and strong growth data out of China aided risk sentiment, while investors closely monitored election developments in Brazil ahead of the presidential runoff.

MSCI's index tracking Latin American currencies .MILA00000CUS rose 0.3%, as Brent crude prices eased over 1% after US President Donald Trump waived some sanctions on Russia, raising the potential for more fuel supplies.

Assets in Latin American crude exporters, including Colombia, Mexico and Brazil are among countries that would typically benefit from higher crude prices. However, given the broader pressure from energy cost inflation, interest rates and fiscal imbalances in the countries, lower oil prices are now seen as a relief.

Colombia's peso strengthened 0.5% to hit a one-month high of 3152.08 per dollar.

Late on Friday, central bank board member Laura Moisa said that higher interest rates in the country may not have the same impact on inflation as they would under different circumstances, especially due to supply shocks from energy and fertilizers.

However, higher interest rates could be a boost to capital flows, she said.

"We believe that recent COP weakness may have run its course, and local factors continue to support the currency," HSBC analysts said in a note.

"Colombia’s government policies seek to reduce the deficit while encouraging investment, particularly in the hydrocarbon sector. Attractive carry conditions could also support the COP despite rising US yields that are eroding appeal for lower-yielding EM FX."

Mexico's peso and Chile's peso strengthened 0.2% each.

Also aiding gains in the region was strong economic growth data out of China — a top importer of resources, including metals and agriculture products out of LatAm.

Meanwhile, the focus on Brazilian elections was high, with the runoff less than a week away.

Two polls showed Senator Flavio Bolsonaro's lead over President Luiz Inacio Lula da Silva has narrowed, pointing to a close race between the right-wing lawmaker and the leftist incumbent.

The real hovered at 5.06 per dollar. The country's local assets had rallied after Bolsonaro's strong showing in the first round earlier this month.

On the equities front, MSCI's stocks index .MILA00000PUS was marginally lower, with energy-focused stocks declining.

Brazil's Petrobras slid 2.5%, Argentina's YPF YPFDm.BA fell 2% and US-listed shares of Colombia's Ecopetrol lost 1%.

Easing Russian sanctions did not lift all markets.

Hard-currency bonds in Ukraine , were both down roughly two cents on the dollar as tensions with Russia intensified and soured investors' expectations of a ceasefire.

Hungary's budget will target a much lower deficit of 4.9% of gross domestic product in 2027, Prime Minister Peter Magyar said as he unveiled the government's draft plan, which is seen as a key credibility test for its euro-adoption ambitions. The forint was up 0.1%.

Elsewhere, the chief executive of Indonesia's stock exchange .JKSE said it planned to exclude stocks with a large proportion of shares held by a small number of investors from several of its indices, in response to MSCI's warning of a potential downgrade to "frontier" status.

Leaders of the exchange also said they would meet MSCI on Monday for clarification on its statement.

Key Latin American stock indexes and currencies at 1521 GMT: