EMERGING MARKETS-Mexican markets lead Latam gains as US election result lifts risk appetite

By Ragini Mathur and Sudeshna Ghoshal

Nov 4 (Reuters) - Mexico's stocks and currency led gains among Latin American markets on Wednesday as a Democratic sweep in the US midterm elections weakened the dollar and boosted appetite for riskier emerging-market assets.

Democrats seized control of both the Senate and House of Representatives on Tuesday after scoring victories in Republican strongholds for the first time in generations.

The dollar fell 0.3% against a basket of major currencies , while US Treasuries rallied as investors positioned for increased political gridlock in Washington.

Investors view the result as potentially limiting the White House's ability to pursue policies that could add to inflationary pressure, reducing the case for further aggressive interest-rate hikes.

A softer dollar and lower US yields typically support emerging-market assets by easing financial conditions, reducing pressure on countries and companies with dollar-denominated debt and making higher-yielding, developing-market currencies more attractive.

MSCI's Latin American currency index .MILA00000CUS rose 0.4%, after earlier touching its lowest level since April. The regional equities index .MILA00000PUS gained 1.9%, recovering from its weakest point since January.

Mexican assets led the regional advance. Mexico's benchmark stock index .MXX climbed 1.7%, after hitting its highest level since March, while the peso strengthened about 1% against the dollar.

"The idea that Democrats are coming in and kind of putting a bit of the brakes on the economic agenda by the White House, means... That they'll likely promote no tariffs," said Juan Perez, director of trading at Monex.

"Because the USMCA and any amendments to it require congressional approval, if they are willing to say, 'No, we don't want to change this and we don't want to put the business and commercial relationship with Mexico at risk,' then that is really good news for the Mexican peso going forward."

The United States-Mexico-Canada Agreement is vital for Mexico because it supports trade with its largest export market and underpins manufacturing supply chains. Changes to the pact could deter investment and pressure the peso.

Brazil, the region's largest economy, was also in focus ahead of its central bank policy decision later on Wednesday. The decision will provide an early test of how the election result has shifted expectations for monetary policy after five consecutive 25-basis-point rate cuts.

The outlook for Brazil's real has weakened on concerns over fiscal policy following the re-election of President Luiz Inacio Lula da Silva, a Reuters poll of foreign-exchange strategists showed.

Investors have worried that Lula may not deliver sufficient fiscal adjustment to address Brazil's chronic budget problems, especially after spending promises made during the election campaign.

Brazil's Bovespa stock index .BVSP rose 1.1% and was on track to snap a six-session losing streak. The real gained 0.2%.

Chile's peso rose 1.2%, while the country's stock index .MMXIPSAGC jumped 1.7%.

Minutes from the Chilean central bank's latest meeting showed policymakers viewed holding rates steady or raising them by 25 basis points as plausible options. The board unanimously decided last week to keep the benchmark lending rate unchanged at 4.5%.

Key Latin American stock indexes and currencies at 1510 GMT: