Updates with late afternoon trading

By Twesha Dikshit and Purvi Agarwal

March 4 (Reuters) - Latin American assets rebounded on Wednesday after a sharp sell-off in the previous session, as investor's fears over the fallout from a prolonged Middle East conflict were temporarily allayed and the U.S. reassured a revival of shipping through the Strait of Hormuz.

Sentiment stabilized after the New York Times reported Iranian intelligence operatives signaled openness to talks with the U.S. Central Intelligence Agency on ending the war.

However, Iran's ambassador to the United Nations in Geneva on Tuesday had ruled out any negotiations with the United States for now.

Still, investors drew comfort from the report.

MSCI's gauge of Latin American equities .MILA00000PUS advanced 3%, recovering some losses from Tuesday. A similar index for currencies .MILA00000CUS gained 1.4% as the U.S. dollar paused its recent rally driven by safe-haven appeal.

"The USD has lost ground broadly this morning amid reports that Iran had made indirect contact with the U.S. to end military action ... some easing in market tensions is evident across FX pairs," Scotiabank analysts said in a note.

Moreover, U.S. President Donald Trump said that the U.S. Navy could begin escorting oil tankers through the vital waterway, but worries lingered as attacks continue to disrupt energy infrastructure and shipping in the region.

U.S. Defense Secretary Pete Hegseth said the U.S. military could fight as long as needed.

Capital Economics analysts said even if energy prices rose further, "most EMs (emerging markets) look well placed to absorb the shock without destabilising external positions and triggering large currency falls."

Brazil's equities .BVSP ticked 1.4% higher, while the real BRL= currency strengthened 1.1% against the dollar. Data showed Brazil's services activity accelerated in February.

Analysts said oil exporters, such as Brazil, could benefit from the conflict — given the disruption to supply — and capture market share.

Stocks in Chile .SPIPSA added 2.4%, after losses in the previous four sessions, partly aided by a slight uptick in copper prices. The Chilean peso CLP= rose 1.4% after dropping 3% on Tuesday.

Other regional currencies also were higher, with the Mexican peso MXN=, Peruvian sol PEN= and Colombian peso COP= up between 0.2% and 1%, and their stocks gaining between 1% and 2.5%.

Stock indexes in Mexico and Chile were set for their biggest one-day gains since early February and January, respectively.

Venezuela's economy grew more than 7% year over year in the fourth quarter, the country's central bank said. Local analyst firms had estimated more modest economic growth and consumer price rises of above 400% last year.

Meanwhile, the cost of insuring exposure to Middle East government debt against default broadly stabilized on Wednesday after two days of sharp rises.

Five-year credit default swaps for Saudi Arabia and Qatar stood at 88 basis points and 38 bps respectively — both up 6 bps from Friday's close.

BROADER EM MARKETS GRAPPLE WITH OIL SUPPLY CONCERNS

Poland's blue-chip equities index .WIG20 added 2.1%. The Polish central bank cut its main interest rate by 25 bps to 3.75%, as widely expected, despite analysts noting that the Middle East conflict added a new layer of uncertainty.

Asian markets faced the brunt of oil supply concerns on Wednesday due to their heavy reliance on imports shipped through the Strait of Hormuz.

South Korea's benchmark KOSPI .KS11 equities index posted its biggest drop in its 46-year history, while Thailand's main stock index .SETI had its largest sell-off since the COVID-19 pandemic.

Analysts at Societe Generale said one reason why the KOSPI was hit is because earnings have remained cyclical despite the AI boom, and the stagflation caused by the Middle East conflict could accelerate a "peak" in earnings.

Key Latin American stock indexes and currencies:

(Reporting by Twesha Dikshit and Purvi Agarwal in Bengaluru; Editing by Paul Simao and Alan Barona)

((Twesha.Dikshit@thomsonreuters.com))