By Nikhil Sharma

June 5 (Reuters) - Latin American currencies scaled a 14-year peak on Thursday as a frail dollar continued to provide a tailwind to local notes against the backdrop of U.S. President Donald Trump's erratic tariff actions.

MSCI's index for Latin American currencies .MILA00000CUS rose by 0.4%, taking it to its highest level since August 2011.

Emerging markets have leveraged the rotation of funds out from U.S. markets, with investors shedding their exposure to American assets to build a more geographically diversified portfolio.

The U.S. dollar index =USD fell 0.3% on the day, taking its yearly losses to 9.2% due to concerns about economic slowdown, recent fiscal woes and raging trade uncertainties.

"We will continue to see some sort of a (U.S. economic) slowdown and that perhaps would allow the Federal Reserve to cut interest rates and that will give some support to local currencies," said Andres Abadia, chief LatAm economist at Pantheon Macroeconomics.

"But I have to say that uncertainty remains extremely high. We don't know what will happen with the U.S. trade war."

The U.S. dollar's weakness has made it a preferred funding currency for popular "carry" trades, channeling heavy flows into higher-yielding emerging market currencies such as the Brazilian real, which is up over 9% this year.

FX strategists in a Reuters poll this week expect a majority of EM currencies will hold onto their recent gains against the greenback's weakness and extend those in the next six months.

The real BRL= rose 0.7% on Thursday ahead of the country's trade balance figures for May.

Brazil sold $2.75 billion in dollar-denominated sovereign bonds on Wednesday as Latin America's economic giant leverages its improving credit risk.

Sao Paulo's main stock index .BVSP edged down 0.2%, while Mexico's local equity index .MXX gained 0.6% after five straight days of losses.

Meanwhile, a gauge of the region's equities .MILA00000PUS advanced 0.7%.

Mexico's peso MXN= added 0.1% after data showed consumer confidence improved after deteriorating for seven straight months.

Also helping the currency were higher oil prices, as revenue from crude exports constitutes a significant component of national income.

The Colombian peso COP= rose 0.2% ahead of the next week's key inflation data for May. Wednesday's Reuters survey indicated that Colombian inflation likely slowed 0.4% last month, below the 0.66% rise in April.

The peso of the world's biggest copper producer Chile CLP= surged 0.9%, riding the wave of elevated red metal prices. The main stock index .SPIPSA dipped 0.04%.

Much-awaited dialogue between Trump and Chinese leader Xi Jinping took place over a phone call on Thursday, according to China's embassy in Washington, as the heads of the two largest economies seek to hash out their differences on tariffs.

Details of what the two leaders discussed are yet to be revealed.

Markets continued to suffer from increased tariffs on aluminium and steel that took effect on Wednesday. The move is likely to hit Mexico hard as it conducts significant industrial trade with the United States.

Among single stocks, Kimberly-Clark KMB.N agreed to sell a majority stake in its international tissue business to Brazilian pulp maker Suzano SUZB3.SA for $3.4 billion. Shares of Suzano spiked 4.6%.

Key Latin American stock indexes and currencies:

(Reporting by Nikhil Sharma)

((Nikhil.Sharma@thomsonreuters.com;))