*

Latam stocks up 1.2%, FX up 0.37%

*

Peru's central bank is expected to cut rates

*

US headline CPI rises 0.4%, year-on-year up 2.9%

*

Mexican stocks at record high

(Updates with afternoon trading)

By Pranav Kashyap, Twesha Dikshit and Nikhil Sharma

Sept 11 (Reuters) -

Latin American currencies edged higher to a record high on

Thursday as investors digested U.S. inflation data that kept

interest rate cut expectations intact, while Peruvian stocks

held steady ahead of an interest rate decision.

A gauge tracking Latin American currencies

rose 0.37% after hitting a record closing high

on Wednesday.

A similar index for stocks jumped 1.22%,

reflecting global sentiment after hotter-than-expected U.S.

inflation data for August did little to alter bets for Federal

Reserve interest rate cuts.

Investors were largely confident about at least a

quarter-point rate cut next week, according to CME's FedWatch.

Peru's S&P/BVL Index gained 0.46%,

with investors anticipating a rate cut from the central bank

later in the day after consumer prices in metropolitan Lima

dropped to 1.1% in August, within the 1% to 3% target range.

The local currency sol was steady for the day in

limited trading.

Mexican stocks climbed to a new record high,

rising 1.56% and surpassing the 61,000-point mark for the first

time, despite data showing industrial output fell 1.2% in July

from the previous month and was 2.7% lower year-on-year.

The peso rose 0.53%.

The regional currencies also benefited from weakness in the

U.S. dollar, which remained under pressure throughout the

day. Fed rate-cut expectations, a softening labor market and

concerns over risks to the central bank's autonomy have

collectively contributed to the dollar's decline, which is down

over 10% this year.

Most LatAm bourses have outperformed Wall Street's S&P

500 index this year as investors increasingly seek yield and

value opportunities outside the United States.

Brazil's real, up 14% year-to-date, remains a

carry-trade favorite with policy rates near a two-decade high,

as policymakers are expected to maintain rates at 15% next week,

extending July's pause after 450 basis points of hikes since

last September.

On Thursday, Brazil's currency rose 0.32%. Fresh data showed

retail sales fell 0.3% in July from June, as expected,

reflecting the impact of nearly 20-year high interest rates on

the local economy.

"Definitely, the economy is slowing, and interest rates

are very high. It's probably too soon for them to cut rates just

yet, but we think that they could cut rates as soon as

December," said Jon Harrison, managing director of EM Macro

Strategy at TS Lombard.

"If we see the Fed cut rates later this month, then that

will help to make sure that the dollar is relatively weak and

help facilitate the central bank to cut as well."

Political uncertainty in Brazil took a dramatic turn

after a five-member panel of the Supreme Court formed a majority

to

convict

former President Jair Bolsonaro of being part of an armed

criminal organization.

Meanwhile, Argentine assets continued to struggle

following a local election defeat for President Javier Milei's

party, reigniting concerns that a resurgent Peronist opposition

could hinder his reform agenda if October's midterms fail to

deliver a majority.

Local peso fell 0.56% - set for another record

closing low, while stocks lost 1.38%.

Turkey's central bank surprised markets with a

250-basis-point rate cut to 40.5%, exceeding forecasts, amid

rising political risks and higher-than-expected inflation.

Stocks in Istanbul fell 1.9%, while the lira

was flat.

Key Latin American stock indexes and currencies:

Stock indexes

Latest Daily % change

MSCI Emerging Markets 1310.89 0.26

MSCI LatAm 2479.81 1.22

Brazil Bovespa 143235.71 0.62

Mexico IPC 61435.55 1.56

Chile IPSA 9151.39 1.98

Argentina MerVal 1800057.17 -1.38

Colombia COLCAP 1851.89 -1.14

Currencies Latest Daily % change

Brazil real 5.3909 0.32

Mexico peso 18.4931 0.53

Chile peso 949.28 1.39

Colombia peso 3887.5 0.92

Peru sol 3.4825 -0.06

Argentina peso (interbank) 1,432.5 -0.56

Argentina peso (parallel) 1,390.0 0