Updates with afternoon trading levels

By Ragini Mathur, Purvi Agarwal and Shashwat Chauhan

July 10 (Reuters) - Most Latin American currencies were muted on Thursday, while Brazil's real recouped some of last sessions' steep losses as markets assessed the impact of U.S. President Donald Trump's latest tariff salvo.

Late on Wednesday, Trump targeted Brazil, Latin America's biggest economy, with threats of 50% tariffs on exports to the U.S., while simultaneously issuing tariff notices to seven smaller trading partners.

President Luiz Inacio Lula da Silva said he wanted to find a diplomatic solution to Trump's tariff order, but vowed to reciprocate like-for-like if they take effect on August 1.

One month implied volatility BRL1MO=FN on the currency shot up to its highest since late April, with the real BRL= up 0.7% on Thursday after falling almost 2.4% in the last session.

"While a tariff announcement was arguably expected to some extent, we think the high levy announced on Brazil goods – currently one of the highest tariff rates announced by the US so far – caught markets by surprise," UBS strategists led by Roque Montero noted.

"Persistent FX weakness is a risk to watch since it could weigh on domestic financial conditions and investment flows."

The Brazilian real has been among the best performing currencies in emerging markets so far this year, as high interest rates make it a valuable carry trade currency.

Fresh data showed Brazil's monthly inflation slowed for the fourth time in a row in June, but the annual rate ticked up and remained well above the official goal.

Mexico's peso MXN= held steady at 18.6 per dollar after minutes from its central bank's last policy meeting showed most of the governing board supports smaller cuts, signaling a more cautious approach.

Chile came under the spotlight recently after Trump slapped 50% tariffs on copper imports to the U.S. earlier this week, and set a hard deadline of August 1. The local peso CLP= eased 0.1%.

Peru's sol PEN= inched 0.1% up in low volumes ahead of a local monetary policy decision.

Stocks in Latin America were mixed, though MSCI's index for regional equities .MILA00000PUS fell 1.3%, set for a fourth straight day of declines.

Heavyweight Brazilian stocks .BVSP down 0.5%, with planemaker Embraer EMBR3.SA down 3.7% as analysts warned that the world's third-largest aircraft manufacturer, which has a huge market in the U.S. for its executive planes and regional jetliners, would be one of the firms most affected by the tariffs.

Stocks in Mexico .MXX were flat, while those in Chile .SPIPSA and Colombia .COLCAP were slightly higher.

Argentina's Merval index .MERV slumped 2.9% as investors returned from a market holiday.

HIGHLIGHTS

** Brazil has few exit routes from Trump tariff but feels less pain

** Egypt's central bank keeps key interest rates unchanged

** Copper output from Chile's Codelco climbs 17% in May

Key Latin American stock indexes and currencies:

(Reporting by Purvi Agarwal, Ragini Mathur and Shashwat Chauhan in Bengaluru; Editing by Marguerita Choy and Shailesh Kuber)

((Ragini.Mathur@thomsonreuters.com; Shashwat.Chauhan@thomsonreuters.com))