* LatAm stocks drop 0.7%, FX down 1.1% * Indexes set for sharp weekly losses * US stocks recover on growing Fed cut bets * Mexican economy shrinks in third quarter (Updates with afternoon trading) By Nikhil Sharma and Sukriti Gupta Nov 21 (Reuters) - Latin American assets were heading for sharp weekly declines on Friday, as emerging markets remained risk-averse even as uncertainty over U.S. Federal Reserve policy and fears of a potential AI bubble eased. A broader index for regional equities <.MILA00000PUS> fell 0.7% on the day and remained on course for its biggest weekly drop since early October, down 2.6%, reflecting subdued sentiment in emerging markets globally even as U.S. markets stabilized after a heavy sell-off in the previous session. After an AI-led rout on Thursday, driven by concerns over a potentially overvalued tech sector despite Nvidia's upbeat forecast, Wall Street investors added risk on Friday, buoyed by growing bets on a December rate cut following remarks from policymakers. The dollar index <=USD> was up 1% for the week, supported by uncertainty after Thursday's U.S. jobs report – delayed because of a government shutdown – painted a mixed picture of the labor market. MSCI's index tracking Latin American currencies <.MILA00000CUS> fell 1.1% and was on pace for its worst week since early July. Talking about the declines in Latam assets on the day, Rachel Ziemba, founder of Ziemba Insights, said, "Latam markets in a way are catching down to the weakness in global markets earlier in the week" with many commodity prices, including oil and metals, down as well. The Brazilian real fell 1.3% and was set for its first weekly decline in six, with a 1.9% drop, as a fall in crude prices weighed . The local stock index <.BVSP> was down 0.4% on the day and 1.9% for the week, also on track for its first weekly loss in six. Brazil's government said that 22% of its exports to the U.S. remain subject to a 40% extra tariff after U.S. President Donald Trump expanded the list of exemptions to include goods such as coffee, meat and fruit. In Mexico, the peso fell 0.5% with data showing Latin America's second-largest economy shrank by 0.3% in the third quarter. The slowing economy has been the biggest reason behind the central bank's decision to cut rates despite ongoing concerns about core inflation. The country's local equity index <.MXX> advanced 0.9%. Separate data showed economic activity contracting 0.6% in September from the previous month. Both the stock index and the currency were heading for significant weekly losses. Colombia's peso dropped 1%. The country's COLCAP Index <.COLCAP> lost 0.2% after falling 1.5% on Thursday. Both assets were headed for heavy weekly losses. Chile's peso dropped 0.9%, taking its weekly losses to 1.3%. The Santiago stock index <.SPIPSA> gained 0.3%, and was up 2.3% for the week after last Sunday's presidential vote, with analysts seeing a potential victory for far-right candidate Jose Antonio Kast in a December runoff, raising hopes that a right-wing government would deliver more market-friendly reforms. Argentina's stock market was open but banks were closed and the local peso did not trade on Friday. Key Latin American stock indexes and currencies: Equities Latest Daily % change MSCI Emerging Markets 1335.5 -2.63 <.MSCIEF> MSCI LatAm <.MILA00000PUS> 2612.38 -0.70 Brazil Bovespa <.BVSP> 154844.47 -0.35 Mexico IPC <.MXX> 62250.28 0.94 Chile IPSA <.SPIPSA> 9827.88 0.26 Argentina Merval <.MERV> 2763731.42 -3.045 Colombia COLCAP <.COLCAP> 2024.51 -0.23 Currencies Latest Daily % change Brazil real 5.4 -1.26 Mexico peso 18.4712 -0.5 Chile peso 936.75 -0.91 Colombia peso 3798.5 -1.04 Peru sol 3.385 -0.2 Argentina peso (interbank) 1424 - Argentina peso (parallel) 1405 -7.82 (Reporting by Nikhil Sharma and Sukriti Gupta; Editing by Kirsten Donovan and Vijay Kishore) ((mailto:Nikhil.Sharma@thomsonreuters.com;)) Keywords: EMERGING MARKETS/LATAM (UPDATE 1)
