EMERGING MARKETS-Latam stocks, FX down as Middle East worries dampen mood

* Brazil Aug. retail sales beat estimates, but pressures remain * Vale down as Q3 iron ore output disappoints * Latam stocks shed 1.4%, FX off 0.8% By Johann M Cherian Oct 18 (Reuters) - Risk sentiment dampened across most of Latin America on Wednesday with equities and currencies falling as investors across the globe turned cautious amid a tense geopolitical environment in the middle east. MSCI's gauge of regional currencies slipped 0.8% as the dollar strengthened by 1416 GMT. Currencies of the region's biggest economies, Brazil and Mexico, slipped 0.3% and 1.0% respectively. Separately, data showed Brazil retail sales in August overshot market expectations but still posted a small decrease on a monthly basis, signaling the sector remains under pressure amid high borrowing costs. "We have forecasted a much sharper correction in demand in the second half of the year than consensus lately," said Felipe Camargo, senior EM economist at Oxford Economics. "The drag from fiscal and monetary policy is yet to reach its peak though, while the boost from the agriculture sector and the mini commodity boom has started to fade. In Mexico, central bank deputy governor Omar Mejia said the balance of risks for inflation has not deteriorated as it already includes factors that prompted the latest outlook revision for consumer prices. In a bright spot, major copper producer Peru's sol added 0.1% as prices of the red metal got a lift after better-than-expected economic data from China improved the demand outlook in the world's top consumer. Currencies and equities in South America have remained rangebound over the past few sessions as investors assessed the broader impact of the Israel-Hamas conflict amid lingering concerns about U.S. interest rates. Meanwhile, stocks in the region shed 1.4% with Brazil's Bovespa and Mexico's benchmark index down 0.8% and 0.6% respectively. Among single stocks, Vale SA dropped 2.8% after the Brazilian miner reported a 3.9% annual decline in its third-quarter iron ore output, hit by a production snag at a key mine. SQM lost 1.8% after brokerage BofA Global Research downgraded the Chilean lithium producer to "underperform" from "neutral." Also in the region, Argentina's peso was 940 to the dollar in parallel trade after the central bank said China has cleared a currency swap line totaling a freely accessible $6.5 billion, part of a broader deal the country has been using to help it defend the embattled peso. Elsewhere in emerging markets, Russia's parliament moved swiftly to complete the passage of a bill that shifts Moscow's legal stance on nuclear testing at a time of acute tension with the West. Key Latin American stock indexes and currencies at 1422 GMT: Latin American market prices from Reuters Stock indexes Latest Daily % YTD % change change MSCI Emerging Markets 943.70 -0.79 -0.51 MSCI LatAm 2223.38 -1.27 7.44 Brazil Bovespa 114988.14 -0.79 4.79 Mexico IPC 49275.84 -0.79 1.68 Chile IPSA 5817.97 -1.24 10.67 Argentina MerVal 831041.05 0.893 311.23 Colombia COLCAP 1123.14 0.35 -12.64 Currencies Latest Daily % YTD % change change Brazil real 5.0512 -0.33 -34.41 Mexico peso 18.1873 -0.98 8.31 Chile peso 934.9 0.10 -34.26 Colombia peso 4224.2 -0.81 -29.41 Peru sol 3.8565 -0.59 -16.06 Argentina peso 350.0000 0.03 -94.69 (interbank) Argentina peso 940 4.79 -97.95 (parallel) (Reporting by Johann M Cherian in Bengaluru; editing by Jonathan Oatis)