EMERGING MARKETS-Latam FX, stocks eye best week in months on China cheer

* Brazil retail sales beat expectations in July * Peru GDP shrank 1.29% in July year-on-year * Latam FX up 0.2%, set to post weekly gains of 2.7% * Latam stocks set for weekly gains of 4% (Updated at 3:27 pm ET/1927 GMT) By Lisa Pauline Mattackal and Shashwat Chauhan Sept 15 (Reuters) - Latin American currencies and stocks were both set for their biggest weekly increases in months on Friday, benefiting from signs of a stabilizing Chinese economy, rallying commodity prices and firmer expectations that the Federal Reserve will stop hiking rates. MSCI's index of Latin American currencies was up 0.2% on the day, rising for five consecutive sessions and set for weekly gains of 2.7% - its best week since late March. Latin American stocks snapped a four-day winning streak, down 0.2% on the day but posting their strongest week since June with gains of 4%. "Latin America is basically at the center of a post-COVID recovery and I'm looking forward to the return of interest and capital into these markets," said Carlos Von Hardenberg, co-founder of Mobius Capital Partners. Latin American assets have begun to recover from a dour August, as stronger than expected data from China has increased hopes that growth in the world's second-largest economy is recovering and commodity prices have jumped. Ideas that major central banks such as the U.S. Federal Reserve and the European Central bank are at the end of their rate hiking cycles have also boosted Latin American currencies even as local central banks have started cutting rates. The Mexican peso outperformed regional peers with gains of 3% this week and was up 0.2% on Friday, while Colombia's peso eyed weekly gains of 2%. "(Major) central banks will still sit on their hands even after they have reached the maximum of their interest rates ... so currencies like the Colombian peso and the Mexican peso will still benefit from this carry trade," said Mauricio Une, senior macro strategist, Brazil, at Rabobank. The Peruvian sol was flat, while the Chilean peso gained 0.6%. Government data showed Peru's economy slipped further in July, landing well below analysts' expectations and deepening fears of a slowdown following a first-half contraction. Investors are gearing up for a busy week next week, with monetary policy decisions from Turkey, South Africa and Brazil in addition to the closely watched Federal Reserve meeting, and Brazil's central bank is expected to cut rates again. "We still have (Latin American) rates in the region of being very juicy, even though we are seeing a perspective of cutting over the next months," Une said. The Brazilian real edged 0.1% higher against the dollar after strong retail sales data, taking its weekly gains to 2.3%, its best week since April. In the week to Wednesday, emerging market debt funds suffered $1.1 billion of outflows, marking their seventh straight week of outflows and EM equity funds lost $1.2 billion, according to Bank of America Global Research. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 985.20 0.31 MSCI LatAm 2395.97 -0.19 Brazil Bovespa 118843.37 -0.46 Mexico IPC 51325.42 -0.83 Chile IPSA 6002.67 0.01 Argentina MerVal 567191.86 -0.798 Colombia COLCAP 1085.37 0.25 Currencies Latest Daily % change Brazil real 4.8700 0.03 Mexico peso 17.0539 0.29 Chile peso 882.5 0.68 Colombia peso 3929.5 0.03 Peru sol 3.7025 0.15 Argentina peso 349.9500 0.01 (interbank) Argentina peso 725 -0.41 (parallel) (Reporting by Amruta Khandekar, Lisa Mattackal and Shashwat Chauhan in Bengaluru; Editing by Alistair Bell and Matthew Lewis)