(Updates to mid-session trading)
* MSCI LatAm stocks set for eighth session of declines
* Chile's peso on track for biggest one-day drop in a month
* Brazil rate decision awaited, 25 bps cut expected
* Vale falls, Mexico's Walmart gains after quarterly results
By Purvi Agarwal and Johann M Cherian
April 29 (Reuters) - Most Latin American stocks and currencies fell on Wednesday after the U.S. Federal Reserve flagged inflation risks at the end of its two-day policy meeting, prompting investors to price in potential U.S. rate hikes next year.
In a divided decision, the Fed held rates as expected but flagged rising concerns about inflation against the backdrop of surging energy costs due to the conflict in the Middle East.
"The notable changes were due to the situation in Iran, highlighting that it is a reason that inflation is elevated," analysts at Schwab Center for Financial Research said, adding that the Fed also noted that the conflict was "contributing to a high level of uncertainty about the economy going forward."
Following the verdict, traders in short-term U.S. interest-rate futures bet on the likelihood of the Fed leaving rates unchanged for the rest of this year, while expectations increased for a rate hike by April 2027.
The consequent rise in the dollar weighed on most Latam currencies. Chile's peso led declines with a 2% fall, while the currencies of Mexico and Colombia lost 0.9% and 0.6%, respectively.
Also in focus was a policy decision out of Brazil expected later in the day, with markets widely expecting the country's central bank to deliver a 25-basis-point cut. Data shows inflation accelerated less than expected in early April.
The real slipped 0.6%, while local stocks fell 1.9%, weighed down by a 5.6% loss in Vale, even as the miner posted a 36% rise in first-quarter profit.
"The Copom will argue that the evolution of the economic backdrop - and particularly the evidence of inflation having fallen since first half of 2025 - is no longer consistent with real policy interest rates of greater than 10%," said Thierry Wizman, global FX and rates strategist at Macquarie.
On the equities front, MSCI's gauge tracking LatAm stocks logged losses for the eighth straight session, dropping 1.3%, and was on track for its longest declining streak since February 2025.
The Mexican stock index dipped 0.1%. Mexico's Walmart reported a profit rise in the first quarter, sending shares up 4.3%.
Meanwhile, Mexico's President Claudia Sheinbaum announced that all federal work projects would now have to use steel from Mexican companies, after attempts to reach a deal to lift U.S. steel tariffs failed.
The move comes amid USMCA negotiations, where Mexico has argued the tariffs imposed on its steel are unfair.
On the war front, U.S. President Donald Trump urged Iran to "get smart soon" and sign a deal, following days of deadlock in efforts to end the conflict, with a media report saying that the U.S. would extend its blockade of Iran's ports.
Iran's currency dropped to a record low of 1,810,000 rials to the U.S. dollar, the Iranian Student News Agency (ISNA) said, while Brent crude futures hit their highest since 2022 at close to $120 a barrel.
The Middle East conflict has battered global markets and raised concerns of energy-driven inflation, as shipping disruptions in the crucial region send oil prices soaring. The United Arab Emirates on Tuesday said it was quitting OPEC and OPEC+ groups.
Latin American market
prices from Reuters
MSCI Emerging Markets 1615.15 -0.11
MSCI LatAm 3137.06 -1.29
Brazil Bovespa 185073.84 -1.88
Mexico IPC 67180.92 -0.13
Chile IPSA 10863.21 -0.39
Argentina Merval 2838160.3 -1.094
1
Colombia COLCAP 2164.88 -0.12
Brazil real 5.0039 -0.6
Mexico peso 17.53 -0.89
Chile peso 906.4 -2.01
Colombia peso 3621.4 -0.55
Peru sol 3.523 -0.33
Argentina peso (interbank) 1390 1.08
Argentina peso (parallel) 1395 2.51
(Reporting by Purvi Agarwal, Avinash P and Johann M Cherian in Bengaluru, Editing by Nick Zieminski and Jonathan Ananda)
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