REFILE-EMERGING MARKETS-Colombian stocks, FX slide as US tensions flare; Argentina remains in focus

(Corrects to remove repetition of bullets) * Bogota recalls ambassador from US, political clash escalates * Argentine peso closes at record low * Argentina central bank signs currency swap deal with the US * LatAm FX up 0.8%, stocks up 1.2% By Niket Nishant, Johann M Cherian and Purvi Agarwal Oct 20 (Reuters) – Colombia's peso weakened against the U.S. dollar on Monday and its stocks inched lower as tensions with Washington over tariffs and drugs cast a shadow on the country's assets, while investors also focused on Argentina ahead of an upcoming election. The oil exporter recalled its ambassador from Washington, intensifying the feud stemming from U.S. strikes on vessels. It also put a spotlight on how quickly political frictions can unsettle sentiment amid investor interest in diversifying their holdings with LatAm assets. Commodities form the backbone of exports for much of Latin America, leaving the region highly exposed if political tensions disrupt supply chains. The sharp escalation was reflected in the 1.4% drop in the local peso against the dollar, while equities dipped 1.4%. Citigroup downgraded Colombia credit to "neutral" from "overweight," citing fragility from the fiscal and political outlook. Argentina's central bank said it signed a deal for a $20 billion exchange rate stabilization agreement with the U.S. Treasury, six days ahead of a key midterm election. Argentina's peso fell 1.7%, closing at a record low. Its stock index slid 0.6% after four consecutive weeks of gains. Dollar bonds fell more than 1 cent on the dollar each. Markets are hawk-eyed on the October 26 election, as concerns remain over how long President Javier Milei's austerity agenda could continue, especially after a defeat in September's provincial elections. "We would expect greater FX volatility if the election results were to signal a shift in patience amongst the electorate with the current economic policies," Morgan Stanley economists said. "Independent of the (election) outcome, a stable macro outcome likely involves a weaker currency." Separately, Argentina's finance ministry began negotiations for a sovereign debt buyback operation to reduce financing costs and support investment in education. On the flip side, Brazil's real gained 0.7% while its stocks hit a two-week high. Mexican stocks fell 0.1% ahead of the third-quarter earnings season. Rising copper prices lifted the currency in Chile 0.5%, the world's largest copper exporter. Stocks gained 0.3%. MSCI's index tracking Latin American equities hit its highest in two weeks and a parallel gauge of regional currencies hit its highest in a week and a half. Separately, data from China showed a surge in soybean shipments from Argentina and Brazil filling in for U.S. exports as China imported no soybeans from the U.S. in September, the first time in nearly seven years. Still, relying too much on China could be problematic, especially as the sector grapples with its own problems of weak domestic consumption and property market struggles. Ratings agency Moody's downgraded China Vanke as the embattled property developer grapples with an ailing liquidity crisis. Elsewhere, investors welcomed the Bolivian presidential election win for centrist candidate Rodrigo Paz but cautioned he now faces a major challenge fixing the economy and will likely have to soften his resistance to IMF support. Key Latin American stock indexes and currencies: Latin American market prices from Reuters MSCI Emerging Markets 1383.3 1.59 MSCI LatAm 2510.16 1.22 Brazil Bovespa 144592.31 0.83 Mexico IPC 61660.25 -0.14 Chile IPSA 9159.75 0.33 Argentina Merval 1977959.2 -0.58 1 Colombia COLCAP 1897.42 -1.39 Brazil real 5.3703 0.7 Mexico peso 18.4061 -0.24 Chile peso 950.66 0.54 Colombia peso 3883.22 -1.41 Peru sol 3.3713 0.2 Argentina peso (interbank) 1475 -1.72 Argentina peso (parallel) 1485 -1.37 (Reporting by Niket Nishant, Johann M Cherian and Purvi Agarwal in Bengaluru; Editing by Shreya Biswas)

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