Updates with afternoon trading levels

By Pranav Kashyap and Nikhil Sharma

May 6 (Reuters) - An index tracking Latin American currencies fell on Tuesday ahead of the week's central bank decisions in Brazil and the United States, while focus was also on Romania, where the currency hit a record low against the euro.

MSCI's gauge for Latam currencies .MILA00000CUS dropped 0.6%, on track for its worst single-day since April 9.

Brazil's real BRL= slipped 0.3% against the dollar after service activity contracted in April. Its central bank is set to kick start its monetary policy meeting amid wider expectations to raise interest rates by a smaller-than-usual 50 basis points on Wednesday.

"Policy rates are already very high ... And they've already had the effect of reversing the depreciation of the currency," said Jon Harrison, managing director of EM Macro Strategy.

"The kind of situation that they were in when they were hiking 100 basis points each time, we've moved on from that. There's now been a bit more stability in the market, in terms of the exchange rate. So less is needed."

The real sank 21.4% in 2024, but is up about 8.2% so far this year.

The U.S. Federal Reserve also started its two-day meeting, with the central bank widely expected to keep interest rates unchanged.

The Mexican central bank will release its monetary policy decision on May 15. A Reuters poll showed that country's annual inflation rate likely ticked up in April but within the central bank's target, supporting expectations of more interest rate cuts.

The Mexican peso MXN= was steady for the day. The country's stock index .MXX rose 2.5%, boosted by a 4.6% jump in Walmart's Mexico unit WALMEX.MX.

Brazil's main index .BVSP was flat for the day. A gauge for regional stocks .MILA00000PUS ticked up 0.3%.

Romania's leu RONEUR=R dropped 2.2% to below 5 per euro, as hard-right eurosceptic George Simion decisively swept the ballot on Sunday, and now faces independent centrist Nicusor Dan in a May 18 runoff.

The central bank said on Tuesday it was looking for the "optimal way" to counter significant capital outflows amid steep falls in the leu currency.

The yield on the domestic 10-year bond RO10YT=RR hit 8.00%, up 50 basis points in the past two days.

U.S. bank JPMorgan opted to go long on the euro against the Romanian leu in FX spot markets post-election. The bank noted that Simion's win increased the likelihood of a devaluation.

Meanwhile, investors also looked out for developments regarding the trade tariffs. U.S. President Donald Trump said on Tuesday that he and top administration officials will review potential trade deals over the next two weeks to decide which ones to accept.

In Colombia, the peso COP= slipped 0.2%. The central bank raised its inflation forecast for the year to 4.4% from 4.1% in its monetary policy report. This came after a surprise interest rate cut last Wednesday. Minutes from the rate-setting meeting are anticipated later in the day.

Argentina's peso ARS=RASL was up 0.8% and is projected to remain within a government-set band in the coming months, likely nearing the upper limit as October's mid-term elections approach, according to a Reuters poll.

The country's official peso ARS= and the black market ARSB= have converged after almost six years of tight capital controls that spawned a host of parallel rates, with focus turning to the central bank's foreign currency reserves.

Key Latin American stock indexes and currencies:

(Reporting by Pranav Kashyap in BangaloreEditing by Rod Nickel and Alan Barona)

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