* Brazil holiday expected to keep volumes low * Mexican peso up 0.4%, carry trade potential eyed By Ambar Warrick April 21 (Reuters) - Mexico's peso recovered from steep losses on Wednesday, while most other Latin American currencies were muted as surging COVID-19 cases hurt appetite for risk-driven assets. Trading volumes in the region are expected to be limited, due to a holiday in Brazil - Latam's largest economy. The peso rose 0.4%, recovering from its worst day in nearly a month as oil prices dropped after major importer India announced new COVID-19 related curbs. Crude exporter Colombia's peso, which fell 0.2% on Wednesday, had also marked similar losses. Focus in the country turned to proposed tax reforms, which could spur spending cuts by the government if rejected. "The combination of risk off markets and expectations of an Iran deal growing firmer have seen crude oil markets fall sharply from highs," analysts at TD Securities wrote in a note. "U.S. energy demand is rising at a fast clip, and expectations for global demand to post a roaring recovery from the pandemic's exit are firming, but this impressive demand growth will need materialize to push markets higher once again." In addition to recent gains in oil, Mexico's peso has also benefited from increased interest in carry trade, owing to its relatively higher yield, as well as reduced volatility in currency markets. The currency has nearly recouped all of its losses this year. Chile's peso hovered around more than three-month highs, which it had hit on strength in the prices of copper, the country's top export. Improving sentiment over copper demand has pushed prices of the red metal close to 10-year highs, and has helped the peso outpace all of its Latam peers this year. Latam stocks fell 0.8% in early trade, tracking steep losses across the emerging market space as risk-driven assets retreated. Elsewhere, Turkey's lira tumbled more than 1% after President Tayyip Erdogan lambasted the opposition over queries into central bank sales of foreign currency, and repeated that Turkey was fighting a "triangle of evil" of interest rates, inflation and exchange rates. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1331.77 -1.18 MSCI LatAm 2391.91 -0.78 Mexico IPC - - Chile IPSA 4953.66 -0.44 Argentina MerVal 0.00 0 Colombia COLCAP 1309.15 -0.17 Currencies Latest Daily % change Mexico peso 19.8810 0.40 Chile peso 695.8 0.09 Colombia peso 3649.09 -0.21 Peru sol 3.6898 0.00 Argentina peso 93.0200 -0.04 (interbank) (Reporting by Ambar Warrick in Bengaluru; Editing by Kirsten Donovan)
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