EMERGING MARKETS-Buoyant dollar weighs on Latam FX; stocks sink

* FX, stocks falls to lowest level in over 7 weeks * Czech national bank expected to hold interest rates * Mexico likely to raise key interest rate - poll (Updates prices, comments) By Bansari Mayur Kamdar and Amruta Khandekar Sept 26 (Reuters) - The Brazilian real led a sharp drop in Latin American currencies on Monday as traders flocked to the safe-haven U.S. dollar while weaker commodity prices and escalating fears of a recession drove stocks down to a two-month low. The UK government's fiscal plans released last week added to jitters around rising interest rates and the potential for a global economic downturn, pushing the sterling to a record low against the dollar. As the dollar hovered near a two-decade high, currencies in resource heavy Latin America fell 2%, hitting their lowest level in more than seven weeks. Brazil's real, fell 2.4% to its lowest in two months, extending last week's declines. Crude and metal prices saw a sharp drop, amid concerns about a global economic downturn hurting demand. Oil exporter Mexico's peso fell 1% while Colombia's peso tumbled 2.3%. Top copper producer Chile's peso fell 2% and the Peruvian sol was down nearly 1% against the dollar. "The sentiment is the worst it's been in the entire year for most of the emerging markets because of the dollar strength and Latin American countries are no different," said Robert Lutts, chief investment officer at Cabot Wealth Management. "Investors are quite cautious and they're expecting more problems going forward." Meanwhile, Latam stocks fell nearly 4% and were set for their largest one-day percentage drop since mid-June. Brazil's Bovespa and Colombia's COLCAP fell about 2.2% and nearly 3% respectively. Brazil's central bank said it would set a 0.7% limit for interchange fees for prepaid cards, which are offered by fintechs in free digital accounts, in a setback for the booming sector. Despite a risk off mood this year, Latin American currencies have fared better than many emerging market peers as regional central banks started their hiking cycles early and went big, staying ahead of the Fed. So far this year, Brazil's real has advanced 3.6% despite volatility ahead of elections in October. Brazilian Economy Minister Paulo Guedes said on Monday that the country need not to fear recession abroad or a stronger dollar, arguing that Latin America's largest economy has its own growth dynamics. Investors are awaiting a slew of central bank policy decisions this week, with the Czech National Bank expected to hold its key interest rate unchanged while the Bank of Mexico is expected to raise its key interest rate to a record 9.25% Key Latin American stock indexes and currencies at 1930 GMT: Stock Latest Daily % change indexes MSCI Emerging Markets 888.57 -1.91 MSCI LatAm 2038.62 -3.91 Brazil Bovespa 109464.37 -2.02 Mexico IPC 44977.52 -0.92 Chile IPSA 5181.10 -0.5 Argentina MerVal 138423.23 -3.154 Colombia COLCAP 1124.72 -2.81 Currencies Latest Daily % change Brazil real 5.3854 -2.57 Mexico peso 20.3800 -0.99 Chile peso 990.5 -1.98 Colombia peso 4535.73 -2.27 Peru sol 3.9227 -0.30 Argentina peso (interbank) 146.2600 -0.55 Argentina peso (parallel) 282 1.77 (Reporting by Bansari Mayur Kamdar and Amruta Khandekar in Bengaluru; Editing by Alistair Bell)