EMERGING MARKETS-Latam FX retreats from recent gains; Brazil cenbank meet awaited

    * Chile's peso among few gaining currencies
    * MSCI Latam FX index hits 7-week high before falling
    * Brazil's central bank to maintain interest rate at

 (Adds details, updates prices)
    By Susan Mathew and Ambar Warrick
    Sept 15 (Reuters) - Brazil's real retreated from six-week
peaks on Tuesday amid worries the country will overshoot its
spending cap, while most other Latin American currencies were
muted after a rash of recent gains. 
    Global sentiment was upbeat after strong China industrial
output and retail sales data kept alive hopes of a steady
economic recovery.
    MSCI's index of Latam currencies hit a
seven-week high but lost a chunk of its increase as Brazil's
real gave up early gains of as much as 1%. 
    Brazilian President Jair Bolsonaro said he will not reduce 
welfare payments for retirees or disabled people, adding that
'Renda Brasil' - a rebranded welfare scheme that Economy
Minister Paulo Guedes had suggested could be funded by cuts to
other programs - will be scrapped.
    On Wednesday, focus will be on the central bank, which is
expected to keep Brazil's benchmark Selic rate unchanged at a
record low 2%.
    "In Brazil... we continue to be somewhat optimistic on the
back of growth keeping its strong momentum during the past few
months," said analysts at Morgan Stanley. "If sustained, it
should make the central bank more comfortable halting its easing
cycle, something that should support the real on the margin." 
    Still, improving risk appetite has been reflected by recent
gains in emerging markets, with high-yielding currencies such as
the Mexican peso and the real looking to benefit
from resurgent carry trade.
    The U.S. dollar retreated as the Federal Reserve kicked off
its two-day meeting on Tuesday, with investors waiting to see if
the central bank would switch its Treasury purchases toward more
long-dated debt to keep long-term yields low.

    Mexico's peso was flat, having rallied more than 18%
off pandemic lows. The currency was at levels last seen in early
    But Morgan Stanley analysts say they are reluctant to chase
the rally as markets may be underpricing some risks, including
the recent rise making the peso relatively expensive. They also
point to volatility around U.S. elections in November.
    Chile's peso was among the few gainers for the day,
as the price of copper soared.
    Stocks in the region marked small gains for the day,
tracking gains on Wall Street.    

    Key Latin American stock indexes and currencies: 
    Stock indexes             Latest    Daily % change
 MSCI Emerging Markets         1112.71             0.76
 MSCI LatAm                    2008.43             0.23
 Brazil Bovespa              100292.04             0.02
 Mexico IPC                   36762.67            -0.32
 Chile IPSA                    3723.37             0.36
 Argentina MerVal             44575.08           -0.087
 Colombia COLCAP               1198.61            -0.09 Currencies             Latest    Daily % change
 Brazil real                    5.2803            -0.12
 Mexico peso                   21.0840            -0.05
 Chile peso                      762.7             0.30
 Colombia peso                 3698.55            -0.25
 Peru sol                       3.5468             0.36
 Argentina peso                75.1800            -0.08
 (Reporting by Susan Mathew in Bengaluru; Editing by Dan