Updates with afternoon trading levels

By Ragini Mathur, Avinash P and Shashwat Chauhan

June 18 (Reuters) - Most Latin American currencies weakened against a firmer dollar on Thursday, as investors weighed the growing chances of a U.S. Federal Reserve interest rate hike later this year, offsetting optimism over the reopening of the Strait of Hormuz.

Brazil's real BRL= dropped 1.2%, also pressured by the central bank's third straight rate cut to 14.25%, while leaving its next steps open despite acknowledging a tougher inflation outlook and risks from election-year fiscal stimulus.

Traders now expect Wednesday's cut to be the Brazilian central bank's last this year, according to LSEG data.

The decision came as economists pared back expectations for rate cuts by major global central banks following an oil-price shock tied to the Middle East conflict.

Inflation expectations for Brazil have climbed steadily, including over longer horizons, as President Luiz Inacio Lula da Silva expands household support measures ahead of his October re-election bid.

The Mexican peso MXN= lost 0.4%, with MSCI's broader gauge of Latin American currencies .MILA00000CUS down 1.7%. The dollar index =USD, meanwhile, gained 0.5%.

On Wednesday, the Federal Reserve held its main lending rate steady, with policymakers' projections showing a rate hike in 2026.

"We think that the bar for further dollar gains from here is quite high. The imminent signing of the Iran framework peace deal means that oil prices could continue to ease, which should alleviate pressure on U.S. inflation and may preclude hikes in the second half of the year," said Matthew Ryan, head of market strategy at Ebury.

Traders now see more than 70% chance of a Fed rate hike as soon as September, according to the CME FedWatch Tool.

Colombia's peso COP= was an outlier, climbing 0.5% against the dollar ahead of Sunday's presidential vote where right-wing candidate Abelardo De La Espriella would be squaring up against Senator Ivan Cepeda.

Among stocks, MSCI's index for the region .MILA00000PUS shed 1.5%, while local bourses were trading in a mixed band.

In Brazil, petrochemical firm Braskem BRKM5.SA dropped 9.5% amid news reports on its debt negotiations with creditors.

Meanwhile, U.S. President Donald Trump said on Wednesday that the U.S. would be better off without the U.S.-Mexico-Canada Agreement, and that he would prefer not to have a new pact, though he remained open to one.

The six-year-old USMCA and its predecessor have underpinned a deeply integrated North American economy. But as negotiations are expected to advance in the coming months, Mexican assets could face renewed volatility.

Key Latin American stock indexes and currencies:

Equities	Latest	Daily % change
MSCI Emerging Markets .MSCIEF	1784.76	0.12
MSCI LatAm .MILA00000PUS	2962.53	-1.53
Brazil Bovespa .BVSP	168210.97	-0.14
Mexico IPC .MXX	68237.56	-0.1
Chile IPSA .SPIPSA	10837.87	0.3
Argentina Merval .MERV	3336288.71	1.3
Colombia COLCAP .COLCAP	2405.71	1.21
Currencies	Latest	Daily % change
Brazil real BRL=	5.172	-1.19
Mexico peso MXN=	17.363	-0.41
Chile peso CLP=	900.22	-1.17
Colombia peso COP=	3432.5	0.48
Peru sol PEN=	3.3812	-0.15
Argentina peso (interbank) ARS=RASL	1450.5	-0.59
Argentina peso (parallel) ARSB=	1465	0.68