EMERGING MARKETS-Latin American markets dip as investors parse policy signals, oil rebound

By Sudeshna Ghoshal and Ragini Mathur

Nov 5 (Reuters) - Most Latin American stocks and currencies edged lower on Thursday as investors weighed central bank signals across the region, a rebound in oil prices and the implications of heavy Republican losses in this week's US midterm elections.

Oil prices rose sharply after an overnight selloff, supporting the dollar after it had weakened alongside US Treasury yields. O/R

Investors were weighing the broader market implications of the US midterm elections and whether the outcome could alter the trajectory of the US-Israeli war with Iran.

The Mexican peso extended gains from the previous session ahead of a monetary policy decision by the country's central bank, also known as Banxico. The central bank is widely expected to keep its key interest rate at 6.50%, with economic activity in Mexico holding up better than expected and inflation near the upper end of the target range.

Mexican shares .MXX were up 0.3%.

"The MXN (Mexican peso) has been dragged down by risk-off markets and is in the spotlight due to Banxico's dovishness, which will be tested today in a closely watched policy meeting," said Alejandro Cuadrado, managing director and global head of FX and Latin America strategy at BBVA.

"The base case is for a pause, but the market is pricing in some chance of a cut. If they pull the trigger, the MXN is likely to get battered again," Cuadrado added.

The Mexican peso lost about 4% in October, although the country's stock index was among the region's strongest performers, gaining 8.7%. That performance contrasted with that of the broader Latin American stock index .MILA00000PUS, which suffered steep losses after Brazilian President Luiz Inacio Lula da Silva's victory in the October 25 runoff election.

On Thursday, the MSCI's regional equity gauge fell 0.3%, while the broader currency index .MILA00000CUS was down 0.1%.

BRAZIL'S CENTRAL BANK PAUSES EASING CYCLE

Brazil's real rose 0.2% against the dollar after the central bank paused its easing cycle on Wednesday, citing higher inflation risks. Policymakers raised their inflation forecasts and removed language from their policy statement pointing to the likelihood of further rate cuts.

Data also underscored the challenges facing Latin America's largest economy. Industrial output fell more than expected in September, extending a broadly negative trend since May as high borrowing costs continued to weigh on demand and investment.

Still, Brazil's benchmark Bovespa stock index .BVSP edged up 0.1%, extending its rebound from October's sharp declines. Lula is expected to decide on potential fiscal measures after returning later this month from an overseas trip, Brazilian Finance Minister Dario Durigan said on Thursday.

Colombia's central bank on Wednesday lowered its 2026 growth forecast and raised its inflation forecast for this year to 7.1% from 6.9%, moving further away from its long-term 3% target. Minutes from the central bank's October policy meeting are due later on Thursday.

Colombia's stock index .COLCAP fell 0.3%, while the peso dropped 0.4%.

Chile's peso and Peru's sol slipped 0.6% and 0.1%, respectively.

Key Latin American stock indexes and currencies: