To The Moon

Updates with late afternoon trading

By Twesha Dikshit and Purvi Agarwal

March 2 (Reuters) - Latin American assets slid to over two-week lows on Monday as the escalating conflict in the Middle East led to a global selloff in risk assets, while oil prices soared and investors flocked to safe havens such as gold and the U.S. dollar.

The MSCI Latin American stocks gauge .MILA00000PUS pared some declines and was down 0.6%, while the currencies equivalent .MILA00000CUS declined 0.5%.

Analysts cited concerns the conflict in the Middle East would drive up inflation and set back global economic recovery.

The U.S.-Israeli air war against Iran embroiled the region as the conflict widened to Lebanon, and Tehran launched missiles and drones at Israel, Gulf States and a British air base in Cyprus, after a weekend bombing killed Iranian Supreme Leader Ayatollah Ali Khamenei.

Though the Pentagon downplayed concerns of the U.S. plunging into an open-ended conflict, President Donald Trump said in a CNN interview that a "big wave" was yet to come in the war.

IMPLICATIONS WILL VARY COUNTRY BY COUNTRY

"Energy exporting countries and those with strong external balances may benefit from higher commodity prices, while energy importers with weaker current accounts or greater inflation sensitivity face more pronounced near-term pressure," said analysts at Gramercy in a note.

Inflationary concerns are focused around the Strait of Hormuz as disruption of shipping through the waterway drove energy prices higher, with oil up as much as 13%.

Still, equities in Colombia .COLCAP and Mexico .MXX, which export oil, were 3.1% and 1.1% lower. Those in Chile .SPIPSA fell by almost 3%, tracking a dip in copper prices. They were on track for their steepest one-day fall since Trump's tariff shock in April 2025.

Separately, central data showed Chile's economic activity fell 0.1% in January, significantly below market forecasts.

Brazil's Bovespa .BVSP reversed course to gain 0.6%. The country's treasury secretary said the upcoming interest-rate-cutting cycle could prove shorter than expected if the conflict in Iran is protracted.

A central bank poll in the region's largest economy showed economists expected the year-end interest rate to be 12%, down from the current 15%.

Benchmark indexes in Argentina .MERV dropped 1%, while the one in Peru .MXNUAMPESCPGPE edged up 0.1%.

However, the stocks pared some declines from earlier in the session, as investor sentiment seemed to improve, with U.S. equities now trading in the positive territory.

"The market's first move on geopolitical headlines is almost always an overreaction. What matters .... is where we close today and how investors process this over the next few days," said Mark Hackett, chief market strategist at Nationwide.

"Historically, geopolitical events create a spike in volatility, not lasting damage."

Meanwhile, a flight to safety nudged up the dollar 0.3%, pressuring LatAm currencies. Chile's peso CLP= dropped 0.8%, the most among peers.

Colombia's peso COP= and the Brazilian real BRL= weakened 0.1% and 0.8%, respectively.

Meanwhile, Morgan Stanley downgraded its view on Mexico's sovereign debt, citing risks including a wider-than-forecast budget deficit and Washington taking a hard line in the upcoming talks on USMCA, which is an existing North America free trade agreement.

The Mexican peso MXN= weakened 0.3%, after having hit its lowest level in nearly a month, and stocks .MXX slipped 1.1%.

In other emerging markets, Israel's equities .TA125 added 4.8% while the shekel ILS= appreciated 1.4% versus the dollar to 3.088, nearing a 30-year high reached last month.

Stocks and bonds in Turkey, Iran's neighbour, fell with the blue-chip equity index .XU100 dropping 2.7% while its international bonds fell by as much as one cent.

Key Latin American stock indexes and currencies:

(Reporting by Twesha Dikshit and Purvi Agarwal in Bengaluru; Editing by Barbara Lewis and Sahal Muhammed)

((Twesha.Dikshit@thomsonreuters.com;))