Latam stocks, FX tumble as US-China trade dispute intensifies

Latin American shares tanked on Monday, on course to post their worst day in more than four months, as heightening trade worries pushed China's yuan to its lowest in more than a decade and sent global markets into a tailspin.

MSCI's index of Latin American shares sank 3.8%, while its index of the region's currencies slid 1.6%, also set to post its biggest one-day drop since March 22.

Beijing on Monday allowed the yuan to fall below the key 7.00 per dollar level and later said it would stop buying US agricultural products, inflaming a worsening trade war with the United States.

That sent MSCI broader index of emerging market currencies 1.2%, on track for its worst session in three years, while the stocks counterpart dropped 3.2% to extend its losing streak to the ninth session - the longest since December 2015.

Assets in Latam's commodity-linked economies slumped as iron ore and copper dropped on the prospect of waning demand from the world's top consumer as the currency fall makes them expensive. Oil prices also slumped.

The global sell-off since last Friday was spurred by an abrupt escalation in US-China trade tensions after US President Donald Trump threatened to slap 10% tariffs on the remaining $300 billion worth of Chinese imports.

Brazil's real extended losses to a sixth straight session, down 1.8% at a two-month low, while Sao Paulo's main stock index gave up 2.6% in its worst session since late-March. Iron ore miner Vale slipped 4.1%.

"The intensification of the trade war dynamic has had a more negative impact on BRL," wrote Sacha Tihanyi, deputy head of emerging markets strategy at TD Securities.

"It's unlikely that until after the next iteration of the pension reform legislative process much happens to capture the market's imagination on BRL," he said adding that the Mexican peso should remain buffered against market volatility by high carry trades.

Brazil's lower house could start voting on a sweeping pension reform bill on Tuesday, with the vote possibly wrapped up by late Wednesday, the lower house leader of a key government ally said on Monday.

Crude exporter Colombia's peso skid to an all-time low, while the copper slide saw Chile's peso slide to 3-1/2 year lows.

In Mexico, the peso fell 1.5%, while stocks in Mexico City touched their lowest in more than eight months, with dimming prospects for economic growth in Mexico prompting local pension funds to shift their $194 billion holdings faster than ever to government bonds.

Argentina's peso fell 1.8% as uncertainty over the country's October presidential election mounted ahead of primary elections on Sunday.

Market-friendly incumbent Mauricio Macri is expected to come in behind the populist-leaning opposition candidate and economists say market reaction will depend on the margin.