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EMERGING MARKETS-Latam FX retreats from recent gains; Brazil cenbank meet awaited

Susan Mathew and Ambar Warrick

* Chile's peso among few gaining currencies * MSCI Latam FX index hits 7-week high before falling * Brazil's central bank to maintain interest rate at record-low (Adds details, updates prices) By Susan Mathew and Ambar Warrick Sept 15 (Reuters) - Brazil's real retreated from six-week peaks on Tuesday amid worries the country will overshoot its spending cap, while most other Latin American currencies were muted after a rash of recent gains. Global sentiment was upbeat after strong China industrial output and retail sales data kept alive hopes of a steady economic recovery. MSCI's index of Latam currencies hit a seven-week high but lost a chunk of its increase as Brazil's real gave up early gains of as much as 1%. Brazilian President Jair Bolsonaro said he will not reduce welfare payments for retirees or disabled people, adding that 'Renda Brasil' - a rebranded welfare scheme that Economy Minister Paulo Guedes had suggested could be funded by cuts to other programs - will be scrapped. On Wednesday, focus will be on the central bank, which is expected to keep Brazil's benchmark Selic rate unchanged at a record low 2%. "In Brazil... we continue to be somewhat optimistic on the back of growth keeping its strong momentum during the past few months," said analysts at Morgan Stanley. "If sustained, it should make the central bank more comfortable halting its easing cycle, something that should support the real on the margin." Still, improving risk appetite has been reflected by recent gains in emerging markets, with high-yielding currencies such as the Mexican peso and the real looking to benefit from resurgent carry trade. The U.S. dollar retreated as the Federal Reserve kicked off its two-day meeting on Tuesday, with investors waiting to see if the central bank would switch its Treasury purchases toward more long-dated debt to keep long-term yields low. Mexico's peso was flat, having rallied more than 18% off pandemic lows. The currency was at levels last seen in early March. But Morgan Stanley analysts say they are reluctant to chase the rally as markets may be underpricing some risks, including the recent rise making the peso relatively expensive. They also point to volatility around U.S. elections in November. Chile's peso was among the few gainers for the day, as the price of copper soared. Stocks in the region marked small gains for the day, tracking gains on Wall Street. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 1112.71 0.76 MSCI LatAm 2008.43 0.23 Brazil Bovespa 100292.04 0.02 Mexico IPC 36762.67 -0.32 Chile IPSA 3723.37 0.36 Argentina MerVal 44575.08 -0.087 Colombia COLCAP 1198.61 -0.09 Currencies Latest Daily % change Brazil real 5.2803 -0.12 Mexico peso 21.0840 -0.05 Chile peso 762.7 0.30 Colombia peso 3698.55 -0.25 Peru sol 3.5468 0.36 Argentina peso 75.1800 -0.08 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Dan Grebler)