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EMERGING MARKETS-Brazil's real weakens on interest rate outlook

SAO PAULO, July 17 (Reuters) - The Brazilian real weakened the most in over two weeks on Thursday after a central bank's policy statement upped investor expectations that interest rates are unlikely to rise in the near-term.

Most other Latin American currencies and stock indexes fell modestly, in line with a drop in risk appetite fueled by fresh U.S. and European Union sanctions against Russia and weaker-than-expected U.S. housing data.

Brazil's central bank held interest rates at 11 percent late Wednesday, saying in its policy statement that the decision was taken "at this moment." Some investors took that phrase as a signal that the bank will maintain or even lower interest rates in the near term to help juice an economy that is expected to grow just 1 percent this year.

"It seems like the worry over weak economic activity is weighing on the central bank's conscience," said Paulo Celso Nepomuceno, fixed-income strategist with brokerage Coinvalores in Sao Paulo.

Yields on Brazilian interest rate futures <0#DIJ:> mostly fell, with the most-traded January 2015 contract dropping 3 basis points to 10.73 percent.

Brazil's real followed suit, weakening 0.85 percent to 2.24 per dollar.

Local stocks also sank, with Brazil's benchmark Bovespa index driven lower by shares of the most widely-traded banks and commodities firms, which tend to attract a higher proportion of foreign investors and track global risk appetite.

Shares of planemaker Embraer SA reversed early losses to gain about 1.5 percent after Brazil's government announced the sale of 60 jets to China.

Chile's IPSA index was little changed while the peso weakened after the central bank on Tuesday cut its key interest rate to 3.75 percent to spur slowing economic growth.

Chilean markets were closed on Wednesday for a local holiday.

Key Latin American stock indexes and currencies at 1525 GMT: Stock indexes daily % YTD % change change Latest MSCI Emerging 1061.14 -0.53 6.4 Markets MSCI LatAm 3437.45 -1.12 8.61 Brazil Bovespa 55340.72 -0.68 7.44 Mexico IPC 43914.89 -0.21 2.78 Chile IPSA 3963.42 -0.02 7.14 Chile IGPA 19291.78 0.03 5.84 Argentina MerVal 8511.159 -0.43 57.88 Colombia IGBC 13855.18 -0.03 6.00 Peru IGRA 16872.99 0.12 7.11 Venezuela IBC 2117.98 0 -22.60 Currencies daily % YTD % change change Latest Brazil real 2.2401 -0.84 5.21 Mexico peso 12.939 -0.19 0.70 Chile peso 563.5 -1.08 -6.64 Colombia peso 1869.2 -0.07 3.36 Peru sol 2.795 -0.32 -0.07 Argentina peso 8.1525 0.03 -20.36 (interbank) Argentina peso 12.25 0.00 -18.37 (parallel) (Reporting by Bruno Federowski; Writing by Asher Levine; Editing by Chizu Nomiyama)