Updates with afternoon levels

By Purvi Agarwal and Ragini Mathur

May 29 (Reuters) - Most Latin American assets eased on Friday as investors locked eyes on a potential U.S.-Iran peace deal, balancing cautious geopolitical optimism against a backdrop of domestic losses led by Brazil.

MSCI's index tracking LatAm currencies .MILA00000CUS was flat, but it was poised for marginal monthly gains. In contrast, the broader equities index .MILA00000PUS was on track for its sharpest monthly retreat since late 2024.

Investors remained on edge as they awaited a crucial decision from U.S. President Donald Trump on a proposed deal with Iran . The potential agreement, which would extend a temporary ceasefire, hinges on reopening the strategic Strait of Hormuz and dismantling Tehran's nuclear capabilities.

"Investors appear quite sanguine over the ongoing war between the U.S. and Iran, convinced that it will soon be over," said David Morrison, senior market analyst at Trade Nation.

"The only question will be: has the war made the situation better or worse for the world overall."

While the three-month-old conflict initially battered stocks and sent both crude oil and the U.S. dollar soaring, mounting hopes for a diplomatic breakthrough have helped global markets climb back from their war-driven March lows.

POLITICAL AND FISCAL FEARS DRAG DOWN BRAZIL

On Friday, the Brazilian real BRL= was flat against the U.S. dollar, but it was poised for its worst monthly performance of the year. Domestic stocks .BVSP also slipped 0.7% to cap their steepest monthly plunge since February 2023.

Data showed that Brazil's economy rebounded in the first quarter of 2026, buoyed by robust household consumption and stronger capital investment.

However, a tight labor market and ongoing government stimulus have complicated the central bank's outlook, clouding the prospects for imminent interest rate cuts.

Brazilian assets were shaken this month by reports linking right-wing challenger Flavio Bolsonaro to a disgraced banker — a scandal that threatens his momentum against incumbent President Luiz Inácio Lula da Silva, who currently leads the polls.

Investors remain deeply concerned over Brazil's deteriorating public finances under Lula, despite recent efforts by his administration to curb spending.

MEXICO EYES TRADE TALKS, COLOMBIA RALLIES ON ELECTION POLLS

Mexico's peso MXN= and benchmark stock index .MXX fell 0.3% and 0.8%, respectively, as trade talks with Washington began . The U.S. is demanding stricter rules of origin for Mexican-built vehicles, prompting Mexico's central bank to trim its growth forecast due to investment uncertainty.

Colombia was a rare bright spot, with stocks .COLCAP pacing for their best week since mid-January, rising 1.6% on Friday. Momentum shifted after a weekend poll showed right-wing candidate Abelardo De La Espriella tied with leftist rival Iván Cepeda ahead of the May 31 election.

"Investors have welcomed de la Espriella's recent momentum – that's not surprising given the starkly different views on how to address Colombia's fiscal challenges," said Kimberley Sperrfechter, senior EM economist at Capital Economics.

Cepeda had vowed to continue current President Gustavo Petro's policies, while De La Espriella proposed to offer incentives for private investors and boost commodity sectors.

Key Latin American stock indexes and currencies:

Stock indexes	Latest	Daily % change
MSCI Emerging Markets .MSCIEF	1751.26	1.54
MSCI LatAm .MILA00000PUS	3034.23	-0.48
Brazil Bovespa .BVSP	173851.02	-0.69
Mexico IPC .MXX	68311.33	-0.81
Chile IPSA .SPIPSA	10918.82	0.19
Argentina MerVal .MERV	3163488.88	2.4
Colombia COLCAP .COLCAP	2217.27	1.59
Currencies	Latest	Daily % change
Brazil real BRL=	5.0419	-0.05
Mexico peso MXN=	17.3539	-0.27
Chile peso CLP=	889.46	0.19
Colombia peso COP=	3702.02	-1.82
Peru sol PEN=	3.4023	0.08
Argentina peso (interbank) ARS=RASL	1,406.0	0.28
Argentina peso (parallel) ARSB=	1,410.0	1.4