By Purvi Agarwal

Jan 21 (Reuters) - Most emerging market currencies weakened against the dollar on Tuesday, with Mexico's peso leading losses, after U.S. President Donald Trump took office and announced a barrage of policy changes and threatened tariffs against Mexico and Canada.

However, there were also some bright spots, with Ukraine's sovereign dollar bonds rallying in the first trading session following Trump's inauguration.

The dollar had languished on Monday after an incoming official said Trump would stop short of formally imposing new tariffs immediately.

But after swearing in, Trump said he was considering tariffs on Canada and Mexico by Feb. 1 and declared illegal immigration a national emergency.

Mexico's peso MXN=, one of the most widely-traded emerging market currencies, fell 1.48% by 1023 GMT, while the Canadian dollar CAD=D3 dropped 0.83%.

The peso, at 20.79, has lost some 20% of its value over the last year, and is not far from its weakest levels since July 2022.

"At some point in 2025, a mixture of expectations of tariffs combined with weak confidence is going to really weigh on the Mexican economy," said Kathleen Brooks, research director at trading platform XTB.

"The FX market is getting a double whammy because it's in the firing line for tariffs and we've got a very strong dollar."

Ukraine's international dollar bonds rallied after the inauguration, with the 2029 maturity XS2895055981=TE adding 1.3 cents to bid at 69.49 cents on the dollar, according to Tradeweb data.

Trump's promises of a peace deal between Ukraine and Russia have boosted those bonds, which have gained more than 10 cents since October, before his re-election.

Elsewhere, China's onshore yuan CNY=CFXS closed at its strongest since early December at 7.27 per dollar.

The Indian rupee INR=IN was flat while the Malaysian ringgit MYR= rose 0.4%.

The dollar index =USD - which measures the greenback against a basket of global currencies - was up 0.7% after tumbling more than 1% in the last session.

South Africa's rand ZAR= eased 0.8%, in line with the dollar's rise, and currencies in emerging Europe followed suit.

Meanwhile, among emerging European currencies, Poland's zloty EURPLN= and the Hungarian forint EURHUF= each lost about 0.2% against the euro.

MSCI's index tracking global EM currencies .MIEM00000CUS was up 0.2%, set for its sixth straight day of gains. The stocks gauge .MSCIEF was flat.

Israel's shekel ILS= lost 0.4% against the greenback. Trump expressed skepticism about the Gaza ceasefire deal on Monday, when asked if he was confident that all three phases of the agreement would be implemented.

Israeli hard currency bonds, stocks and the shekel had rallied last week after the complex accord. Moody’s Ratings said the deal reduces the risks to Israel's public finances and could improve its sovereign credit rating.

All eyes are on the materialization of potential policies that Trump had pledged during his campaign, and have kept risky EM assets under pressure, especially in the last quarter of 2024, where the Federal Reserve's hawkish stance also added to concerns.

Meanwhile, the IMF said that front-loading some planned budget cuts to 2025 would create room for faster interest rate cuts in Poland, where monetary policy remained tight after the central bank left rates unchanged last week.

Investors will also parse through comments from South African, Israeli and Ukrainian leaders at the World Economic Forum gathering in Davos.

HIGHLIGHTS:

** Fitch Downgrades China Vanke to 'B-' w/ Rating Watch Negative

** South Korea economy barely grew in Q4; BOK to cut rates in February: poll

(Reporting by Purvi Agarwal and Shashwat Chauhan in Bengaluru; Editing by Varun H K)

((Purvi.Agarwal@thomsonreuters.com;))

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