Updates with mid-session trading

By Johann M Cherian and Purvi Agarwal

May 20 (Reuters) - Latin American assets rose on Wednesday as U.S. President Donald Trump's remarks sparked hopes for a potential Middle East peace deal, while investors also monitored political developments ahead of key regional elections later this year.

MSCI's index tracking LatAm currencies .MILA00000CUS gained 0.9%, while the stocks gauge .MILA00000PUS was up 2.5% as risk sentiment improved after Trump said negotiations with Iran were "in the final stages".

Crude prices LCOc1 slid 6% following Trump's comments, while global government bond yields steadied near multi-year highs after a sharp selloff earlier this week as investors priced in potential interest rate hikes amid energy-induced price pressures.

Minutes from the U.S. Federal Reserve's latest meeting show that a growing number of policymakers believe the central bank should lay the groundwork for a possible rate hike. A Fed rate hike could lift the dollar and pressure riskier emerging markets.

ELECTIONS ACROSS LATIN AMERICA

Colombia's peso COP= appreciated the most among regional currencies, up 2% at 3,717.8 per dollar. The finance ministry's public credit director Javier Cuellar said the country expects to reduce its external financing needs in 2027 to less than $6 billion, down from about $9.8 billion projected for 2026.

The country remains mired in fiscal troubles stemming from President Gustavo Petro's expansionary policies, and is now gearing up for polls on May 31.

Colombia is also grappling with security concerns, with presidential candidate Paloma Valencia pledging a tougher strategy against armed groups, in contrast to Petro's negotiation-based approach.

Brazil heads to the polls in October and analysts believe a right-wing candidate could be favorable for markets amid concerns about the country's deteriorating public finances.

The real BRL= was up 0.9% at 5 per dollar and the Bovespa index .BVSP gained 2.2%.

Brazilian assets are on track for monthly declines following a recent report that unveiled financial ties between right-leaning presidential candidate Senator Flavio Bolsonaro and a jailed banker, hurting his chances, according to the latest survey.

"There was a set of folks in the Brazilian public where if you say the international markets have some real concerns about Bolsonaro, that doesn't actually shift their vote intention, but it does shift their kind of perceptions of economic competence," said Layna Mosley, director of the Princeton Sovereign Finance Lab at Princeton University.

BofA's survey of LatAm fund managers showed that 40% expect markets to start trading elections from August.

Meanwhile, Peru's sol PEN= edged up 0.3% to 3.4 per dollar, while local stocks .MXNUAMPESCPGPE rose 2.4%.

The copper exporting nation is also preparing for a presidential runoff next month, with a latest Ipsos poll indicating right-wing candidate Keiko Fujimori having a narrow lead over leftist Roberto Sanchez.

Elsewhere, widespread protests continue against the cost of living and austerity measures in Bolivia, which have forced local companies to suspend operations in impacted areas. Hard-currency bonds were broadly steady.

The country asked Colombia's ambassador to leave, citing sovereignty concerns and interference in internal affairs.

Key Latin American stock indexes and currencies at 1853 GMT:

Stock indexes	Latest	Daily % change
MSCI Emerging Markets .MSCIEF	1641.49	0.17
MSCI LatAm .MILA00000PUS	3072.56	2.51
Brazil Bovespa .BVSP	178023.74	2.15
Mexico IPC .MXX	68817.57	0.38
Chile IPSA .SPIPSA	10604.8	2.45
Argentina MerVal .MERV	2783313.66	0.31
Colombia COLCAP .COLCAP	2098.91	-0.53

Currencies	Latest	Daily % change
Brazil real BRL=	5.0012	0.92
Mexico peso MXN=	17.2862	0.68
Chile peso CLP=	896.77	1.05
Colombia peso COP=	3717.77	2.01
Peru sol PEN=	3.4115	0.33
Argentina peso (interbank) ARS=RASL	1,397.0	0.14
Argentina peso (parallel) ARSB=	1,410.0	1.74