Updates to mid-session trading

By Johann M Cherian and Purvi Agarwal

Feb 7 (Reuters) - Most Latin American currencies and stocks reversed early gains and dipped on Friday, on renewed tariff worries, while investors also parsed inflation reports out of major economies in the region.

MSCI's index tracking Latam currencies .MILA00000CUS dipped 0.3%, while the stocks measure .MILA00000PUS lost 1% after President Donald Trump said he plans to announce reciprocal tariffs on many countries next week, a major escalation of his trade war.

Emerging markets assets came under significant volatility throughout the week as U.S. President Donald Trump announced tariffs on Canada and Mexico, but then later paused the execution for a month after negotiations.

Investors lapped up undervalued emerging market assets following the brief respite on trade war worries setting up the Latam currencies and stocks indexes for weekly advances of about 1% each. The broader EM stocks index .MSCIEF settled at a more than one-month high.

However, uncertainty prevails as Trump did not do away with duties on imports from major economy, China, which was met with limited Chinese tariffs on U.S. goods.

In Latin America, Mexico's peso MXN= slipped 0.5% and was set for a weekly rise. Local stocks .MXX edged up 0.1% after data showed annual inflation rate slowed slightly more than expected in January, aiding expectations of more interest rate cuts by Banxico. Yields on Mexican bonds MX5YT=RR, MX10YT=RR, MX30YT=RR dipped 10-11 basis points.

"Several factors will help to keep inflation in check: softer domestic demand in (the first half of the year), relatively low oil prices, persistently high real interest rates and easing labour-market pressures," said Andrés Abadía, chief LatAm economist at Pantheon Macroeconomics.

"But the risks are the U.S.-Mexico trade saga and mounting uncertainty around domestic policy decisions, which could disrupt Mexico’s financial stability."

Following Mexico's reprieve from threatened U.S. tariffs, flows into dedicated Mexico equity funds climbed to a 34-week high, according to EPFR data.

Chile's peso CLP= dipped 0.1%. Data showed annual inflation accelerated, remaining above the central bank's target range in January.

The Colombian peso COP= bucked the trend and was up 0.3% to touch a five month high ahead of inflation data. The technical team of the central bank said they see a higher interest rate than expected by the market.

Brazil's real BRL= slipped 0.6%. Further strengthening the dollar and pressuring EM currencies, U.S. data pointed to a still robust jobs market aiding expectations that Federal Reserve will stay cautious on interest rate cuts.

Brazilian equities .BVSP fell 1.5%, dragged down by Bradesco's BBDC3.SA 3.2% decline despite expecting higher net interest income in 2025.

Chilean equities .SPIPSA lost 0.2%. A report said, state miner Codelco is targeting production of 1.391 million metric tons of the red metal this year.

Elsewhere, China's foreign ministry said it is opposed to U.S. "smearing and sabotage" of the Belt and Road Initiative in Panama through "pressure and coercion", after the South American nation decided to exit the program.

Argentina's peso ARS= was little changed, while local stocks .MERV fell 3.6%. Analysts nudged down their forecasts for this year's inflation, but were more upbeat about economic growth.

For the week ending February 5, EM equities saw net outflows, while sovereign papers saw net inflows for the fifth straight week, according to data compiled by LSEG.

Key Latin American stock indexes and currencies at 1913:

(Reporting by Purvi Agarwal in Bengaluru; editing by Barbara Lewis and Nick Zieminski)

((Purvi.Agarwal@thomsonreuters.com;))