EMERGING MARKETS-Brazil's Bovespa index rebounds though banks sink

* Brazil Bovespa gains 0.63 pct, Mexico IPC up 0.14 pct

SAO PAULO, Nov 22 (Reuters) - Brazilian stocks rose on

Friday after two days of losses, though bank shares extended a

recent drop as investors remained cautious on the outlook for

the financial sector.

Mexico's IPC index rose for a third straight day,

while Chile's bourse was little changed.

Brazil's benchmark Bovespa stock index rose 0.63

percent to 53,019.79, though remained on course to post a weekly

loss of nearly 1 percent.

State-run oil company Petroleo Brasileiro SA,

known as Petrobras, rose 1 percent, nearly erasing the previous

day's losses, while homebuilder Gafisa SA climbed 4.2

percent.

Banking shares continued to drag on the index for a third

straight day on investor concern over an impending Supreme Court

ruling in a long-standing lawsuit involving Brazil's biggest

banks.

The lenders have been accused of failing to remunerate

account holders properly during the inflation-fighting monetary

plans implemented during the late 1980s and early 1990s. The

sector could be forced to pay as much as 150 billion reais

($65.6 billion) in compensation.

"Given the huge impact such litigation could have on the

financial system and on the economy, we think it is unlikely

that the banks will lose the cause in court," Credit Suisse

Securities analysts led by Marcelo Telles wrote on Friday.

Shares of state-run Banco do Brasil SA fell 2.5

percent while private-sector competitor Itaú Unibanco Holding SA

dropped 0.8 percent.

Mexico's IPC index edged higher, rising 0.14 percent

to 41,055.68 as a 0.3 percent gain in shares of

telecommunications firm America Movil offset a 0.3

percent drop in lender Grupo Financiero Banorte.

Chile's IPSA index was little changed from

Thursday's close. Retailer Cencosud advanced 0.8

percent while rival Falabella dropped 1.1 percent.

Latin America's key stock indexes at 1521 GMT:

Stock indexes Latest daily % YTD %

change change

MSCI LatAm 3,316.80 0.99 -13.52

Brazil Bovespa 53,019.79 0.63 -13.01

Mexico IPC 41,055.68 0.14 -6.06

Chile IPSA 3,715.42 0.01 -13.62

Chile IGPA 18,365.27 0.01 -12.84

Argentina MerVal 5,491.51 1.78 92.39

Colombia IGBC 13,377.28 0.03 -9.10

Peru IGRA 15,126.98 0.02 -26.67

Venezuela IBC 2,334,232 5.1 395.13