EMERGING MARKETS-Latam FX hits seven-month low as hot US inflation lifts dollar

By Ragini Mathur and Sudeshna Ghoshal

Nov 10 (Reuters) - Latin American currencies fell to a seven-month low on Tuesday after a stronger-than-expected US inflation report reinforced expectations that the Federal Reserve will raise interest rates next month, lifting the dollar and dimming the appeal of emerging-market assets.

MSCI's Latin American currency index .MILA00000CUS fell about 1%, touching its lowest level since April in intraday trading. A gauge of regional equities dropped 1.3%.

The dollar strengthened 0.4% against a basket of major currencies and Treasury yields rallied after data showed US consumer prices rose more than expected in October. Traders are now fully pricing in two 25-basis-point Fed rate hikes by March, with the first expected in December, according to LSEG data.

A stronger dollar and rising US Treasury yields typically weigh on emerging markets by drawing capital toward higher-returning US assets, weakening local assets.

"Any extension of dollar length from here is now likely to rest on Middle East tensions and AI concerns, at least in the near term," said Nick Rees, head of macro research at Monex.

An earlier risk-on mood, initially supported by lower oil prices, faded after the inflation data.

Brent crude slipped to $90 a barrel after US President Donald Trump said he would hold off on further military strikes against Iran. O/R

The US-Israeli war with Iran has lifted oil prices this year, further complicating the inflation and interest-rate outlook for central banks worldwide.

In Colombia, the stock index .COLCAP fell 2.4%, while the peso edged 0.5% lower against the stronger dollar.

Data released late on Monday showed consumer prices rose 0.20% in October from September, slowing from a 0.37% increase in September. Annual inflation, however, inched up to 6.30% from 6.29%. The data comes as President Abelardo de la Espriella's government faces mounting fiscal pressure.

Colombia is also seeking a large lending arrangement with the International Monetary Fund, though sources familiar with the talks said on Monday that no decision was expected in the coming weeks.

Brazil's central bank said worsening inflation prospects, despite slowing growth, reflected four supply shocks: higher oil prices, El Niño-related pressures, the end of the 44-hour work week and a weaker currency driven by domestic policy uncertainty.

The assessment came in minutes from last week's policy meeting, when officials halted their easing cycle and held the benchmark Selic rate at 13.75%.

Brazil's equity benchmark fell 0.4%, while the real tumbled 1.6% to its weakest level since October 26, when Brazilian markets sold off sharply after President Luiz Inacio Lula da Silva's reelection.

Mexican shares .MXX fell 0.1%, putting the index on track to snap a five-session winning streak. The peso was down 0.9%.

Key Latin American stock indexes and currencies: