EMERGING MARKETS-LatAm currencies mixed as tight Brazil elections keep investors on edge

By Sudeshna Ghoshal and Johann M Cherian

Oct 16 (Reuters) - Latin American currencies were mixed on Friday, with Brazil in focus as new polls showed both presidential candidates in a tight race, while investors also assessed index operator MSCI's warnings about Indonesia's and Turkey's status as "emerging markets".

New polls this week showed the lead achieved by right-wing candidate Senator Flávio Bolsonaro during the first-round vote appeared to be dwindling into a technical tie with President Luiz Inácio Lula da Silva, ahead of the presidential elections on October 25. The latest was a survey by CNT/MDA.

The real rose 0.42%, rebounding from a near-two week low, and was last trading at 5.0751 per dollar, while the Bovespa index .BVSP managed a 0.4% gain.

However, both the assets were on course for weekly declines, with the currency and the equities benchmark set for their biggest weekly drop since mid-August.

Analysts also noted the significance of the government passing legislation that would reduce the country's workweek from six days to five.

"The passing of the labor reform, shortening the workweek, seems like a pro-Lula win even though plenty on the right agreed to also pass it," said Juan Perez, director of trading at Monex.

The elections are being closely watched by the US and China, given Brazil is the largest economy in Latin America at a time when the region has broadly seen a right-wing sweep in governments.

"There is growing concern about a political crisis potentially forming as Brazil navigates two diplomatic policies: holding firm with China and keeping the US as a friend," Perez said.

Data showed economic activity in Brazil rose by a seasonally adjusted 0.3% in August from the previous month, matching the median forecast in a Reuters poll of economists.

SELLOFFS IN TURKEY, INDONESIA

Turkey and Indonesia were under scrutiny after index provider MSCI warned of downgrades from "emerging market" status, citing a lack of transparency over trading practices.

Turkish equities .XU100 fell nearly 3%, while Indonesian stocks .JKSE tanked 11.6% and logged their biggest daily drop since 1998.

More broadly, MSCI's LatAm currency index .MILA00000CUS shed 0.4%, with declines led by Mexico's peso , which slipped 0.5%, and Chile's peso , which dipped 0.4%.

Mexico's equities benchmark .MXX gained 1.6%, with FEMSA FEMSAUBD.MX up 6.1% after JP Morgan raised its rating on the bottler and retailer's shares in New York.

Stalled progress on the US-Mexico-Canada free trade deal remains a key overhang for the country.

Against this backdrop, the International Monetary Fund urged Latin American governments to take advantage of still-favorable global conditions to cut public debt and raise productivity, while warning that a fiscal adjustment has stalled in many countries including Mexico, Brazil and Colombia.

The World Bank said it sees up to $5 billion in possible loans to Venezuela over the next two years, a report said.

Key Latin American stock indexes and currencies: