By Ragini Mathur and Purvi Agarwal

July 18 (Reuters) - Most Latin American currencies advanced against a weakening dollar on Friday, while stocks were mixed as global optimism over U.S. economic improvement overshadowed lingering concerns about tariffs.

MSCI's LatAm currencies gauge .MILA00000CUS was up 0.3%, and was on track to log weekly gains, after logging its steepest decline since February last week.

The dollar index =USD eased 0.2%, helping most Latin American currencies advance. The greenback had gained on Thursday, as investors bought a cheaper dollar after a report U.S. President Donald Trump planned to fire the Federal Reserve chair, which he later denied.

The Colombian peso COP= rose 0.8%, the most among peers, tracking higher oil prices. It was also set for its third week of gains.

Chile's peso CLP= was up 0.3%, following copper prices higher.

Brazil's real BRL= was little changed, but was on track for a weekly gain. Local politics became the focus again after Brazil's federal police searched former President Jair Bolsonaro's home.

Bolsonaro is facing charges of plotting a coup against current President Luiz Inacio Lula da Silva after the 2022 elections.

Trump tied his 50% tariffs on Brazil to the treatment handed to Bolsonaro, complicating politics in the country as it goes to vote next year, with Lula's approval ratings low.

"The base case is that Bolsonaro will not be able to run in the next election, but that will only be confirmed at the beginning of the second quarter next year," said Alejandro Cuadrado, global head of FX and LatAm strategy at BBVA.

Brazil local currency bond returns were poor for June, given the Lula-Trump spat.

Argentina's peso ARS= bucked the upward trend, falling 0.5%.

Moody's on Thursday hiked its rating two notches for the government of Argentina's long-term foreign currency and local currency issuer, though it remains in non-investment grade territory.

Mexico's peso MXN= gained 0.2%. The country's economy likely expanded 1.3% in June from the same month a year earlier, a preliminary estimate showed.

Cuadrado said the region continued to see inflows as investors looked to local currency markets in the face of a downward dollar trend.

Some key economic indicators in the U.S., including retail sales, exceeded expectations this week, displaying U.S. economic resilience and setting a positive tone for global markets.

MSCI's index tracking Latin American stocks .MILA00000PUS remained largely flat, but was set to log modest gains for the week.

Stocks in Chile .SPIPSA and Colombia .COLCAP were 0.1% and 0.4% higher, respectively.

Heavyweight Brazilian stocks .BVSP fell 0.5%, while Argentina's .MERV was up 1.9%.

The Russian rouble RUB= weakened 0.8% against the dollar, over-the-counter market data showed. The European Union reached an agreement on an 18th sanctions package against the country in another blow to its oil and energy industry.

Key Latin American stock indexes and currencies:

(Reporting by Ragini Mathur and Purvi Agarwal in BengaluruEditing by Rod Nickel)

((Ragini.Mathur@thomsonreuters.com;))