The Brazilian real , the Mexican peso and the Chilean peso all gained around 1 percent as investors bet the European Central Bank could unleash a third round of its long-term refinancing operation to ease constraints in the banking system.
Investors also speculated the US Federal Reserve could unveil a new bond-buying program at the end of its two-day meeting on Wednesday.
Prospects the Fed would pump more money into the US economy sent the dollar 0.7 percent lower against major trading-partner currencies, according to the Dollar Index .
Part of the liquidity provided by the Fed and the ECB often finds its way into emerging markets, which offer higher interest rates. Latin American stocks rallied on hopes of central bank action, causing the benchmark Bovespa index to erase all of its losses for the year.
"The weakening of the dollar is a global move today," said Luiz Fernando Genova, a trader with Banco Daycoval in Sao Paulo. "Tomorrow we'll have the Fed's interest rate decision, and there are expectations of another round of quantitative easing."
Talk of extra monetary stimulus increased after Spain's' short-term borrowing costs jumped to their highest since 1997 in a debt sale, underscoring fears the country could soon be shut out off capital markets.
In the debt secondary market, Spain's 10-year bonds paid yields above 7 percent, a level considered unsustainable in the long run.