* LatAm stocks drop 1.5%, FX down 1.3% * Indexes set for sharp weekly losses * US stocks recover on growing Fed cut bets * Mexican economy shrinks in third quarter By Nikhil Sharma 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 1.5% on the day and remained on course for its biggest weekly drop since early July, down 3.5%, reflecting subdued sentiment in emerging markets globally even as U.S. markets stabilized after a heavy selloff 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. Odds for a quarter-point cut jumped to 72%, from 39% a day before, according to the CME Group's FedWatch tool, with bets further backed by dovish comments from Fed 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 1.3% to a more than two-week low against a firm dollar and was on pace for its worst week since early July. "Investors are looking for a little bit more safety," said Daniela Hathorn, senior market analyst at Capital.com, pointing to the relative stability of U.S. markets. "We just have that risk aversion market that tends to have a bigger impact on emerging markets because they tend to be a little bit more fragile." The Brazilian real fell 1.4% and was set for its first weekly decline in six, with a 2.2% drop, as a more than 2% fall in crude prices weighed . The local stock index <.BVSP> was down 0.9% on the day and more than 2.5% for the week, also on track for its first weekly loss in six, succumbing to downbeat global sentiment. In Mexico, the peso weakened 0.66% against the dollar 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> edged up 0.2%. 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 more than 1.2% on Friday, adding to a similar fall in the previous session. The country's COLCAP Index <.COLCAP> nudged up 0.16% after falling 1.5% on Thursday. Both assets were headed for heavy weekly losses, dragged by lower copper prices. Chile's peso , the currency of the world's biggest copper producer, dropped 1%, taking its weekly losses to 1.6%. The Santiago stock index <.SPIPSA> lost 0.6%, but was up 1.3% 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. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 1333.48 -2.77 <.MSCIEF> MSCI LatAm <.MILA00000PUS> 2591.63 -1.49 Brazil Bovespa <.BVSP> 154037.8 -0.86 Mexico IPC <.MXX> 61790.59 0.17 Chile IPSA <.SPIPSA> 9742.8 -0.6 Argentina MerVal <.MERV> 2798017.1 -1.84 Colombia COLCAP <.COLCAP> 2032.49 0.16 Currencies Latest Daily % change Brazil real 5.4054 -1.36 Mexico peso 18.501 -0.66 Chile peso 937.73 -1.02 Colombia peso 3803.7 -1.18 Peru sol 3.3856 -0.22 Argentina peso (interbank) 1,424.0 -1.21 Argentina peso (parallel) 1,405.0 1.75 (Reporting by Nikhil Sharma; Editing by Kirsten Donovan) ((mailto:Nikhil.Sharma@thomsonreuters.com;)) Keywords: EMERGING MARKETS/LATAM
