EMERGING MARKETS-Mexico's peso lags Latam currencies as Middle East spooks markets

* Chile cenbank to cut interest rate by 50bps in May: poll * Mexican inflation coming from abroad -finance official * Mexico Feb retail sales rise 0.4% from Jan * Latam FX up 0.2%, stocks add 0.7% By Bansari Mayur Kamdar April 19 (Reuters) - Mexico's peso was down by 1.1% against the dollar on Friday, recovering from falling as much as 5% earlier after reports that Israel had attacked Iran triggered a global risk-off mood. Israel launched an attack on Iranian soil, sources told Reuters. However, some calm returned to the markets after Tehran signaled it had no plans for retaliation. The peso is down 3.5% so far this week and headed for its worst weekly performance since October as a flight to safety hit one of the world's most liquid emerging market currencies. Brazil's real inched 0.7% higher against the dollar but was still on track for its seventh straight weekly loss. "For emerging market currencies outside Asia-Pacific, geopolitical worries and the general reassessment of the Fed outlook were painful," UBS strategists said in a note. The peso lagged other Latin American currencies, after falling sharply in a flash crash, while data showed Mexican retail sales rose 0.4% in February from January. Inflationary pressures in Mexico are mostly being imported from abroad, and are not coming from public spending, Mexico's Deputy Finance Minister Gabriel Yorio said on Thursday. The MSCI index for Latam currencies struggled for direction and was last up 0.2% by 1458 GMT. It was still on track for its worst weekly performance since October, as the dollar strengthened on fading hopes of the Federal Reserve cutting interest rates early and as events in the Middle East also sparked a rush to safety. The broader emerging market currencies index was last down 0.1%, after falling as much as 0.7% earlier. Bucking regional weakness once again, currencies of top copper producers Chile and Peru advanced 1.2% and 1.3%, respectively, against the dollar, as copper prices soared to a two-year high on fund buying spurred by supply concerns. Colombia's peso shed 0.6% against the greenback and was on track for a second straight weekly decline. HIGHLIGHTS: **Vietnam central bank: ready to intervene in FX market **South Korea to take decisive action if needed to stabilise FX market **S&P cuts Israel's credit rating on geopolitical risk Key Latin American stock indexes and currencies at 1458 GMT: Stock indexes Latest Daily % change MSCI Emerging 1004.93 -1.34 Markets MSCI LatAm 2403.26 0.74 Brazil Bovespa 125264.69 0.86 Mexico IPC 55938.47 0.36 Chile IPSA 6406.04 -0.7 Argentina MerVal 1182604.0 0.833 6 Colombia COLCAP 1336.69 1.18 Currencies Latest Daily % change Brazil real 5.2128 0.72 Mexico peso 17.2590 -1.07 Chile peso 954.7 1.15 Colombia peso 3948.71 -0.65 Peru sol 3.6996 0.46 Argentina peso 870.5000 -0.06 (interbank) Argentina peso 995 3.02 (parallel) (Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Alexander Smith)