EMERGING MARKETS-Brazil's weakness drags Latin American stocks lower

By Johann M Cherian and Niket Nishant

Oct 13 (Reuters) - Brazil's stock benchmark led losses in Latin America on Tuesday, as uncertainty surrounding the presidential election weighed on investor sentiment ahead of the runoff later this month.

The Bovespa index .BVSP lost 1%, while the real weakened 0.69% to 5.021 per dollar after a BTG Pactual/Nexus poll showed the race between the two leading candidates remains close.

Right-wing candidate Flavio Bolsonaro is expected to receive 48% of the vote, compared with 45% for leftist President Luiz Inacio Lula da Silva. However, with a 2-percentage-point margin of error, the poll did not show either candidate with an outright lead.

The moves illustrate the fragility of investor sentiment as a resurgence in inflation pressure complicates the policy backdrop for the country's central bank.

"There is a lot of uncertainty right now in terms of who's going to win," said Andres Abadia, chief LatAm economist at Pantheon Macroeconomics.

"Prediction markets are favoring Bolsonaro. But with the relatively good momentum that Lula has gathered in recent days, that has increased the real's sensitivity to any kind of election news. It's a very tight race and anything can happen."

According to a BofA fund manager survey, bullishness on Brazilian stocks picked up after Bolsonaro's strong showing in the first round of the election.

IMF WARNS OF GROWTH RISKS

Outside of Brazil, the enthusiasm was more contained as the International Monetary Fund trimmed its growth forecasts for Latin America and the Caribbean for this year and 2027.

Most of the region was getting little help from the AI boom that has allowed other economies absorb the energy shock from the war in the Middle East, the IMF said.

It projected regional growth of 2.3% this year, down from its July forecast of 2.4% and below the 2.5% registered in 2025. The IMF cut its 2027 forecast to 2.5% from 2.7%.

Fiscal concerns in most of the region's major economies such as Brazil, Mexico and Colombia have acted as a drag. Argentina and Venezuela are also recovering from years of debt distress.

MSCI's index tracking regional equities .MILA00000PUS slipped 1.1%, while a parallel currencies gauge .MILA00000CUS fell 0.62%.

In Colombia, officials pushed back against budget cuts proposed by allies of the new right-wing president, saying they would crimp investigations and trials of human rights abuses tied to the ongoing internal conflict.

Colombia's peso was last up 0.41%.

Energy producer Mexico's currency declined 0.67%, tracking lower crude prices after the US announced a diesel supply deal with Russia earlier this week.

Uncertainty over Mexico's free trade deal with the US and Canada, along with the Mexican interest rate outlook, has also limited gains for assets in the region's second-largest economy.

Key Latin American stock indexes and currencies: