Latam FX steady, stocks drop after US enters Middle East conflict

By Purvi Agarwal

Most Latin American currencies and stocks fell on Monday after U.S. attacks on Iran ramped up geopolitical uncertainty, while investors awaited Iran's response to gauge how long the conflict will last.

The United States attacked nuclear sites in Iran over the weekend, to which Tehran repeated retaliatory threats but was yet to do so in a meaningful way, while Israel continued its attacks.

Stock markets across the Middle East were mixed. Israeli stocks TA125 closed down 1.3% but were hovering around record highs. The index snapped a six-session winning streak.

Stocks in Turkey XU100 closed 0.6% lower, while ones in Saudi Arabia TASI ended 1.3% higher.

International bonds in Israel and Saudi Arabia were slightly higher to the dollar.

Turkey's lira USDTRY was at its lowest since March 19, set for its third session of declines. Israel's shekel (IRS=) strengthened 0.4%.

The U.S. dollar DXY was down 0.2%, reversing gains from earlier in the day, and limiting the fall in emerging market currencies.

MSCI's index of Latin American currencies (.MILA00000CUS) was down 0.2%, while the stocks gauge (.MILA00000PUS) tumbled 0.8%.

Brazil's real USDBRL was flat while the Mexican peso USDMXN slipped only 0.1%.

"The market is waiting to see how Iran will respond... until then the general mood of the markets has been to give everything the benefit of doubt and hope that things sort of muddle through," said David Nicholls, EM portfolio manager at East Capital.

Mexico is due an interest rate decision this week, where the central bank is widely expected to cut its key interest rate by half a percentage point.

Data on the day showed the Mexican economy grew 0.5% in April from March while retail sales fell 1% in April.

Chile's peso USDCLP tumbled 1.2%, despite a slight uptick in copper prices.

Meanwhile, a report said Iran's parliament had approved closing the Strait of Hormuz, an important corridor for oil transportation, but the closure awaits approval from the top security body.

Investors have been worried about the impact of a potential Hormuz closure on oil prices, which soared to a five-month high on Monday, and its impact on inflation.

Yet, the Colombian peso COP fell 0.2%, in-line with broader market declines.

Most regional bourses declined, with Argentina's Merval IMV down 2.8%, heavyweight Brazilian equities IIBOV down 0.4% and Mexican stocks ME off 0.5%.

However, Latam assets have had a good year so far, benefiting from a shift out of U.S. assets and limited impact from U.S. tariffs.

Highlights:

** Polish interest rates will not be cut in July, central banker Kotecki says

** South Africa agrees $1.5 billion World Bank loan to upgrade infrastructure

Key Latin American stock indexes and currencies around 1442 GMT: