EMERGING MARKETS-Brazil's stock rally puts LatAm equities on course for best day since October 5

By Johann M Cherian and Mehnaz Yasmin

Oct 20 (Reuters) - Latin American stocks were headed for their best day in over two weeks on Tuesday, helped by strong gains in Brazil and a vote of confidence from the US Treasury secretary.

MSCI's index tracking LatAm stocks .MILA00000PUS rose 1.66%, while a parallel gauge tracking regional currencies .MILA00000CUS advanced 0.45%.

The region has drawn fresh attention in recent weeks as investors look for alternatives when the AI rally takes a breather.

Markets are also closely watching the tight presidential race in Brazil between right-wing candidate, Senator Flavio Bolsonaro, and the leftist leader, President Luiz Inacio Lula da Silva.

With the runoff set for October 25, the region's largest economy remains front and center. Brazilian equities .BVSP rose 1.4% and were the top performers in the region. The real firmed 0.38%.

While Bolsonaro commanded a stronger showing during the first round, his lead has narrowed. Against this backdrop, the senator said he would restore Perse, a tax-break program for the events sector, if he wins.

On the other hand, Lula pledged to disclose his bank, tax and telephone records as long as Bolsonaro did the same, seeking to gain the upper hand as both grapple with graft allegations.

"I wouldn't be 100% sure that Bolsonaro would have any space for a big maneuver," said Vladimir Miklashevsky, a family office EM portfolio manager.

"It would be more positive for a fixed-income story, but I'm not sure that the effect would last for longer. It's not the (Javier) Milei story of what happened to Argentina."

OIL COOLS, AIDING SENTIMENT

Oil prices were marginally lower for the second consecutive day on hopes of a diplomatic resolution to the Middle East conflict.

Meanwhile, US Treasury Secretary Scott Bessent, in an interview with 2Way TV, said there was "a generational opportunity in Latin America."

In Mexico, stocks .MXX gained 0.6% after President Claudia Sheinbaum said that a trade deal with the US is "very close."

Data showed the economy likely expanded 3.7% in September from the same month a year earlier.

Separately, a Reuters survey showed that headline inflation likely accelerated in the first half of October but core inflation stabilized, supporting expectations that the central bank may keep interest rates steady.

The peso was marginally higher. Typically, currencies are more appealing when rates are higher.

Colombia's peso depreciated 0.76% after lawmakers approved spending distributions for next year's 634.9 trillion pesos ($201.14 billion) budget, projecting a 9.4% fiscal deficit. Stocks .COLCAP were flat.

Elsewhere, Hungary's forint weakened 0.4% after the central bank kept its base interest rate at 5.5% and said a cautious policy was needed.

Earlier in the day, Prime Minister Peter Magyar announced a 4.9% 2027 budget deficit target and said that it would fall below European Union guidelines by 2030.

Key Latin American stock indexes and currencies: