EMERGING MARKETS-LatAm assets inch lower on higher oil prices, fiscal concerns

Updates with late afternoon trading

By Johann M Cherian and Purvi Agarwal

Oct 7 (Reuters) - Indexes tracking major stocks and currencies in Latin America dipped on Wednesday, mirroring a cautious global mood as oil prices at $100 a barrel and mounting fiscal concerns dampened sentiment.

MSCI's index tracking regional stocks .MILA00000PUS lost 1.2%, while a parallel currencies gauge .MILA00000CUS was down 0.5% as investors flocked to safe-haven dollar, up 0.4%.

Minutes from the US Federal Reserve's latest meeting showed policymakers disagreed about whether the move — the first interest rate hike in three years — was precautionary or represented a shift towards tighter monetary policy to curb investment and spending.

Brazilian assets remained in the limelight after a stellar rally following Senator Flavio Bolsonaro's better-than-expected performance in the first round of presidential elections over the weekend.

The benchmark index .BVSP and the real BRL= dropped 0.4% and 0.5%, respectively, on Wednesday as investors took some profits.

Markets have been pricing in the likelihood of greater fiscal discipline under the right-wing candidate, which could give way to interest rate cuts by the local central bank.

"The most bullish development was... the implications for Congress. Flavio's party won the largest bloc in both chambers, giving him far more legislative leverage than either his father or Lula (President Luiz Inacio Lula da Silva) had at the start of their terms," said analysts at BCA Research.

However, referring to Bolsonaro's fiscal plans, they said, his priorities would be boosting productivity and the economy's potential growth as fiscal austerity might become "politically costly" for an economy at the brink of recession.

BCA Research joined Morgan Stanley and J.P.Morgan in upgrading its stance on Brazilian equities, now holding them at "neutral".

OIL RISES AND SO DO YIELDS

Oil prices were an overhang over world markets as fighting intensified between Yemen's Houthis and Saudi forces, while a storm heading towards oil-producing regions in North America exacerbated supply concerns.

Latin America, with several oil-producing economies, generally benefits from higher crude prices. However, with oil prices hovering near $100 a barrel for months, inflation concerns and consequent higher borrowing costs adding to domestic fiscal issues have limited those gains.

Higher energy costs also brought elevated sovereign debt concerns to the fore, with Mexico, Colombia and Argentina among those most vulnerable.

A powerful El Nino is disrupting South American weather patterns, fanning inflation worries.

Analysts at HSBC downgraded equities in Chile and Mexico, while upgraded those in Colombia on potential fiscal consolidation and oil-and-gas deregulation.

Colombia's peso COP= weakened 0.1%, while its stocks .COLCAP were down 1.6%, on track for their sharpest daily fall in three weeks.

The energy exporter's newly inaugurated government revoked a decree that capped foreign investments by private pension funds at 30%. The previous decree was issued by the previous administration to force pension funds to repatriate capital to boost local investment.

Mexico's peso MXN= was muted. The local central bank's minutes on its decision to keep interest rates unchanged in September are due on Thursday.

Argentinian stocks .MERV lost 2.3%, on track for their steepest one-day fall in more than a week.

Key Latin American stock indexes and currencies at 1921 GMT

(Reporting by Johann M Cherian, Mehnaz Yasmin and Purvi Agarwal in Bengaluru; Editing by Peter Graff and Shilpi Majumdar)

((johann.mcherian@thomsonreuters.com))