EMERGING MARKETS-LatAm markets set for weekly gains as softer dollar buoys risk appetite

By Ragini Mathur

Aug 21 (Reuters) - Latin American stocks and currencies rose on Friday and were on track to erase the previous week's losses, as persistent U.S. dollar weakness and higher commodity prices buoyed demand for regional assets.

The MSCI Latin America equities index .MILA00000PUS climbed 2.3%, while the regional currency gauge .MILA00000CUS gained 0.4%. Both were set to post weekly advances after falling last week, when investor interest shifted toward AI-focused Asian markets and a selloff hit Brazilian assets.

Regional markets drew support this week from the softer dollar =USD, resurgent commodity prices and domestic economic data.

The dollar hovered near multi-month lows as investors questioned whether U.S. Treasury efforts to reassure bond markets have the effect of undermining confidence in the currency.

"Despite the small impact on bond yields so far, the USD has weakened significantly since the buyback announcement. This, too, may be the result of read-through of the Treasury announcement to the prospect of looser Fed policies," said Thierry Wizman, global FX and rates strategist at Macquarie Group.

MORE CLUES ON INTEREST-RATE OUTLOOK?

Investors will turn to next week's Jackson Hole symposium, where remarks from the Federal Reserve chair could offer clues on the interest-rate outlook.

"But we would not bet on Kevin Warsh sounding dovish at Jackson Hole," Wizman added.

In Colombia, data earlier this week showed the economy expanded 3.5% in the second quarter from a year earlier, outpacing much of Latin America. However, concerns over the fiscal deficit remain.

"A key factor behind the strength of domestic demand in Colombia is the excessively loose fiscal stance under former President Gustavo Petro. Encouragingly, de la Espriella's new administration has so far struck the right tone," said Kimberley Sperrfechter, senior emerging markets economist at Capital Economics.

Still, the earthquake earlier this month could complicate that outlook, with economic losses estimated at 30 trillion pesos ($9.58 billion).

"While that spending is necessary for reconstruction, it is likely to make the new government's efforts to rein in the budget deficit even more challenging," Sperrfechter added.

The Colombian peso COP= rose 0.9% on Friday, hovering near its strongest level since 2018, while the country's stocks .COLCAP gained 0.3%. Both were headed for weekly gains.

Brazilian markets also advanced, with the real BRL= and stocks .BVSP higher on the day and set for weekly gains after sharp losses last week.

The previous week's losses reflected investor unease over opinion polls ahead of Brazil's October presidential election, particularly the prospect that President Luiz Inácio Lula da Silva could secure another term.

Lula's left-leaning administration has appeared to reassure investors this week that it is committed to the country's fiscal framework, which combines limits on spending growth with measures to bolster revenue.

On Thursday, Brazil announced about 2.3 billion reais ($444.2 million) in investments to strengthen its AI ecosystem, splitting projects between U.S. and Chinese companies as it seeks to balance ties with both powers.

Key Latin American stock indexes and currencies at 15:05:

(Reporting by Ragini Mathur in Bengaluru; editing by Barbara Lewis)

((Ragini.Mathur@thomsonreuters.com;))