• MSCI Latam stocks index up 6% in May
  • Mexican shares slide more than 2%
  • Mexican peso flat on pressure from oil prices

Most Latin American stocks and currencies declined on Friday after the United States outlined its response to China's security law on Hong Kong, but were up for the month on optimism about major economies emerging from coronavirus lockdowns.

US President Donald Trump said he was directing his administration to begin the process of eliminating special treatment for Hong Kong in response to China's plans to impose new security legislation in the territory.

An escalation in US-China trade tensions has the capacity to further weigh on the global economy, which is already in dire straits due to the novel coronavirus pandemic.

The MSCI's index of Latin American stocks slid 0.6% for the day, while the currencies index retreated slightly.

Still, the two indexes gained for the month as investors bet on some measure of economic normalcy, with parts of the United States and Europe scaling back curbs on social and business activity.

Latin American assets also outperformed their broader emerging market peers in May.

For the day, Brazilian stocks were flat, while Mexican equities fell more than 2%.

Colombia's peso eased off 12-week highs after the central bank cut the benchmark interest rate for the third consecutive month by 50 basis points to a historic low of 2.75% in an effort to prop up the economy amid the pandemic.

The Mexican peso traded flat, pressured by a decline in oil prices.

Citi analysts expect two more half-percentage-point interest rate cuts in Mexico, one in June and one later in the second half of the year, with the risk leaning to more.

Brazil's real rose nearly 1% despite data showing the economy contracted in the first quarter as the coronavirus outbreak in March triggered the steepest quarterly drop in almost five years. The currency looks to end three months of losses in May.

Brazil's central bank has not exhausted its monetary policy options, but it should be skeptical of reducing interest rates close to zero or printing money to buy bonds and finance the government deficit, the country's central bank chief said.

In Argentina, Economy Minister Martin Guzman said a new proposal from bondholders to revamp around $65 billion in debt had been a step in the “right direction," but still fell short of what the country needed to dig itself out from its debt crisis amid a lengthy recession.