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EMERGING MARKETS-Wall Street's rally on jobs data powers 2% surge in Latam shares

By Susan Mathew

(Updates prices) By Susan Mathew Oct 4 (Reuters) - Latin American stocks rallied on Friday, with Mexican shares set for their best session in six months, as they tracked a strong rise on Wall Street after U.S. data showing moderate jobs growth offered some relief from recession fears. The Labor Department's September data showed that U.S. non-farm payrolls increased by 136,000 and the unemployment rate dropped to a 50-year low. But analysts say the report was not upbeat enough to throw the U.S. Federal Reserve's easing cycle off its path. "There was nothing in the U.S. employment report ... to change our view that the U.S. economy will slow further and that the Fed will cut rates only one more time in this cycle," wrote Hubert de Barochez, a market economist at Capital Economics. That provided an additional boost to risk assets such as stocks. MSCI's index of Latam shares rose 2% to log its best session in a month and helped erase almost all of its losses this week. Mexican shares jumped 2.3%, while those in Brazil climbed almost 1%. Argentine stocks surged 4% to touch their highest in three weeks, while Chile stocks rose for the first time in four sessions. Against a steady dollar, most regional currencies made gains with Brazil's real hitting a three-week high, while the Mexican peso extended gains to a third straight session. A Fed easing cycle should keep the dollar pressured and support Latam currencies, wrote Gustavo Rangel, chief LATAM economist at ING, adding that he sees more downside for the greenback early next year. "It would benefit Latam currencies that are more sensitive to external drivers and risk aversion generally, such as the Colombian peso and Brazil's real," he said, but would hurt currencies with stronger domestic anchors such as the Mexican peso. The Argentine peso slipped, logging its seventh losing session in eight. The outlook for the currency remains shaky with general elections later this month expected to all but assure volatility. President Mauricio Macri's loss by a much wider-than-expected margin in presidential primaries in August saw the country's markets crash on fears of return to populist policies under main rival Alberto Fernandez. "Given Fernandez's unorthodox economic policy credentials, his ability to roll over debt amortizations should be further debilitated," wrote ING's Rangel. "A debt default is not inevitable, but it would likely require a considerable policy tightening and that seems, arguably, unrealistic to expect from Fernandez." Key Latin American stock indexes and currencies at 1931 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 997.05 0.48 MSCI LatAm 2687.32 2.04 Brazil Bovespa 102430.08 0.9 Mexico IPC 43403.01 2.26 Chile IPSA 5039.54 0.78 Argentina MerVal 31553.32 3.91 Colombia IGBC 12914.02 0.07 Currencies Latest Daily % change Brazil real 4.0600 0.71 Mexico peso 19.5484 0.49 Chile peso 715.5 0.08 Colombia peso 3430 0.41 Peru sol 3.379 -0.18 Argentina peso 57.7300 0.07 (interbank) (Reporting by Susan Mathew in Bengaluru;)