Updates with afternoon trading

By Pranav Kashyap, Twesha Dikshit and Nikhil Sharma

Sept 4 (Reuters) - Latin American currencies traded cautiously against a steady dollar on Thursday, as investors prepared for a pivotal U.S. jobs report expected to shape expectations for a potential interest rate cut by the Federal Reserve.

MSCI's gauge of Latin American currencies .MILA00000CUS edged down 0.1%, while its counterpart tracking stocks .MILA00000PUS reversed earlier losses to gain 0.54%.

The dollar index =USD rose 0.15% after declining in the prior session amid weaker U.S. private payrolls data and higher jobless claims, suggesting labor market softness that bolstered expectations for a September rate cut.

Attention now shifts to Friday's closely watched nonfarm payrolls report, which could reinforce bets for a rate reduction at the Fed's September 16-17 meeting.

The Mexican peso MXN= weakened 0.27%, while the benchmark stock index .MXX rose 0.35%. Meanwhile, data showed Mexican fixed investment fell more than expected, declining 1.4% in June.

Investors monitored Argentina's peso closely ahead of local elections in Buenos Aires on September 7 and midterm polls in October.

The peso ARS=RASL edged lower on Thursday and was on course for a weekly decline, while Argentine stocks .MERV surged 2.8%, marking their strongest single-day gain in nearly a month.

"If you get a scenario where there is some underperformance in the elections (by Milei), either in Buenos Aires or in the broader midterms, that can result in a lot of capital outflows from Argentina," said Brendan McKenna, FX strategist with Wells Fargo Securities.

"I would expect the peso to kind of bear the brunt of that pressure," he added.

The Treasury pledged liquidity support through interventions aimed at stabilizing the currency, which faced a sharp selloff last week amid corruption allegations involving officials in President Javier Milei's administration.

Meanwhile, Brazilian equities .BVSP appeared set to end a three-day losing streak, rising 1% on Thursday, driven by gains in commodity-linked stocks.

The real BRL= held steady after data showed the country's trade surplus jumped 35.8% year-on-year in August, despite pressure from steep U.S. tariffs.

The real remains the best-performing currency among its South American counterparts this year, gaining over 13% as dollar weakness fuels higher inflows into high-yielding emerging market assets.

A study showed that Brazil had emerged as the third-largest destination for Chinese investments, with projects across several sectors attracting $4.2 billion last year.

Most Latin American benchmarks have also outperformed Wall Street's S&P 500 index in 2025.

The Colombian peso COP= climbed 0.5% to reach a near seven-week high, while stocks in Bogota .COLCAP gained 0.74% ahead of Friday's inflation data for Colombia.

Ecuador's 2040 dollar bond EC221423917=RRPS advanced 1.125 cents, following the United States' announcement of nearly $20 million in new security commitments for the country.

Among individual stocks, Brazilian planemaker Embraer EMBR3.SA rose 2.5% as it prepared to unveil a "milestone" in Washington next week.

Key Latin American stock indexes and currencies:

(Reporting by Pranav Kashyap in Bengaluru; Editing by Mohammed Safi Shamsi)

((pranav.kashyap@tr.com; +919886482111;))