EMERGING MARKETS-MSCI LatAm indexes hit one-week lows as oil jumps; Brazil eyed

By Sudeshna Ghoshal and Johann M Cherian

Oct 22 (Reuters) - MSCI's Latin American stock and currency indexes fell to one-week lows on Thursday as surging crude prices rekindled concerns over inflation and slowing growth, while investors also kept a close watch on Brazil's electoral race.

MSCI's index tracking regional equities .MILA00000PUS slid 2.2%, while a parallel currencies gauge .MILA00000CUS dipped 0.4% versus the dollar.

Brent crude prices rose 2% to their highest since May at $110-a-barrel after more Houthi attacks in Saudi Arabia stoked concerns over an escalation of the Middle East conflict and further disruptions to crude oil supplies from the world's key exporting region.

Oil prices have been a key driver of global markets since the conflict began earlier this year on concerns that higher energy-fueled inflation would prompt central banks to raise interest rates.

Mexico's peso hovered near 18.7 per dollar and stocks .MXX lost 1.4% after data showed headline inflation rose more than expected in early October.

The currency is one of the worst performing in the region as investors unwound carry trades after investors viewed minutes from the Bank of Mexico's latest meeting as moderately dovish earlier this month after it kept its benchmark interest rate unchanged at 6.50%.

On the other hand, traders are pricing in more rate hikes by the US Federal Reserve in the coming months.

"This prospective policy divergence implies a narrowing in the expected US-Mexico interest-rate differential. That is particularly important for MXN given the peso’s traditional attractiveness as a carry currency," Christian Lawrence, chief cross-asset strategist at Rabobank said.

"The break above 18.50 has encouraged traders to test the 18.60 area, adding momentum to the move independently of the broader macro repricing," he said, adding that a confirmed close above 18.60 could signal that the peso could decline further.

BRAZIL POLLS IN FOCUS

The bigger focus in the region was Brazil, with less than a week to go for the closely-watched runoff between Senator Flavio Bolsonaro and President Luiz Inacio Lula da Silva, on Sunday.

Latest polls have shown the market-friendly Bolsonaro's lead over Lula narrowing, sparking volatility in local markets. A Datafolha survey is expected to be released after the stock market closes on Thursday.

The real fell 0.3% at 5.04 to the dollar, while the benchmark index .BVSP lost 1.5% , weighed by mining giant Vale's VALE3.SA 2.8% fall as iron ore prices declined.

Currencies of copper exporters Peru and Chile were also marginally lower.

Peru rolled out a series of economic measures to fight a potential slowdown due to the impact of the El Niño weather phenomenon that investors fear will compound inflation risks.

Elsewhere, the lira was steady after Turkey's central bank delivered a widely expected 100-basis-point rate cut to 36%, ending a five-meeting pause during which policymakers monitored the inflation impact of the Iran conflict.

Key Latin American stock indexes and currencies at 15:28