EMERGING MARKETS-LatAm assets rise as falling oil lifts risk appetite; Brazil polls in focus

By Johann M Cherian

Oct 20 (Reuters) - Most currencies and stocks in Latin America rose on Tuesday as sentiment towards riskier emerging markets improved following a fall in crude prices, with Brazilian assets among top performers ahead of pivotal presidential elections five days from now.

MSCI's index tracking LatAm currencies .MILA00000CUS rose 1.9%, while a parallel gauge tracking regional stocks .MILA00000PUS advanced 0.6%.

Oil prices , a key driver of emerging markets, slipped from a five-month high to $106-a-barrel as traders weighed the impact of more Russian energy exports after the US lifted sanctions, against escalating Houthi attacks on Saudi energy infrastructure and reports of vessel attacks in the Gulf.

Brazil remained on top of traders' mind in LatAm ahead of the second round of voting on Sunday that will determine the trajectory of the region's largest economy for the next four years.

The real firmed 0.4%, while local stocks .BVSP gained 1.6%, reflecting investors pricing in a victory for right-wing candidate Senator Flavio Bolsonaro on expectations that potential fiscal consolidation could pave the way for interest rate cuts.

While Bolsonaro commanded a stronger showing during the first round, his odds have been narrowing to a technical tie with contender President Luiz Inácio Lula da Silva. Against this backdrop the senator said in a post on X that he would restore Perse, a tax break program for the events sector, if he wins.

"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."

In Mexico, stocks .MXX gained 0.7% and the peso pared some of its earlier losses and traded flat after President Claudia Sheinbaum said that a trade deal with the US is "very close", though some issues still need to be resolved, particularly those related to tariffs.

Uncertainty over the renegotiated USMCA free trade deal has been a major overhang over the country's markets. Separately, data showed the economy likely expanded 3.7% in September from the same month a year earlier.

Other currencies in the region including Chile's peso firmed 0.5%, while Peru's sol climbed 0.4%.

Bucking the broader trend, Colombia's peso depreciated 0.4% and stocks .COLCAP lost 0.5% after lawmakers approved spending distributions for next year's 634.9 trillion pesos ($201.14 billion) budget, projecting a 9.4% fiscal deficit. Public debt is expected to rise this year and next and servicing it is a big allocation in the budget.

Elsewhere, Hungary's forint weakened 0.3% after the central bank kept its base interest rate at 5.5% as widely expected and said inflation risks meant 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.

"The targets are definitely good for an investment story, but at the moment, they don't sound very realistic to me," Miklashevsky said.

"The prime minister has more trust at the moment than the previous government and their dialogue with the EU is much better, so I hope they can get better access to the EU funding."

Key Latin American stock indexes and currencies at 15:48: