* Brazil inflation ends 2020 above target, highest in 4 years * Mexico industrial output beats expectations in November * Chilean peso continues to weaken on lower copper prices By Shreyashi Sanyal Jan 12 (Reuters) - A gauge for Latin American currencies rose for the first time in 2021 on Tuesday, as hopes of recovery were buoyed by improving economic data from Brazil and Mexico, while a recent rally in the dollar cooled. The MSCI"s index for Latin American currencies rose 0.5%, with Mexico"s peso leading the advance. The peso rose 0.6% against the dollar a day after data showed the Mexican manufacturing sector"s recovery from the pandemic slump had slowed in November but was stronger than forecast. Mexico"s currency recently came under pressure from lower oil prices, which has also hurt crude-exporter Colombia"s peso. Official figures from Brazil showed annual inflation ended last year at 4.5%, comfortably above the central bank"s year-end target as food prices rose the most in nearly two decades. The Brazilian real gained 0.5%, after sliding to a two-month low against the dollar on Monday. However, a growing consensus shows that the tides of economic growth, interest rates and commodity prices are turning in the currency"s favor. "Brazil has lagged while Mexico has outperformed and positioning has diverged, with Mexico at the highest allocation in three years and Brazil at the lowest. Further out, Brazil faces clear fiscal issues, yet this should not stop Brazil performing well in early 2021," strategists at Morgan Stanley wrote in a client note. However, Morgan Stanley cut its outlook for emerging market currencies overall to neutral from "bullish", citing higher U.S. yields and little improvement in fundamentals. A recovery also ensued in emerging market currencies in Europe on Tuesday, after steep losses last week to a rebounding dollar, while stocks held near record highs as increased liquidity and low lending rates boosted demand for equities. Emerging market assets have been under pressure in the last week from continued dollar strength and higher yields, which are seen as a negative. The Chilean peso was among the few currencies which were lower on Tuesday, falling 0.7%, pressured by weakening copper prices. Shanghai copper fell to a one-week low, hit by demand concerns amid new curbs to fight a resurgence of coronavirus cases in China, the world"s biggest metals consumer. Key Latin American stock indexes and currencies at 1344 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1353.04 0.25 MSCI LatAm 2486.05 0.65 Brazil Bovespa 123439.20 0.15 Mexico IPC 0.00 0 Chile IPSA 4584.94 0.71 Argentina MerVal 0.00 0 Colombia COLCAP 1453.12 0 Currencies Latest Daily % change Brazil real 5.4757 0.46 Mexico peso 19.9613 0.49 Chile peso 724 -0.66 Colombia peso 3490.43 0.05 Peru sol 3.5997 0.33 Argentina peso (interbank) 85.4600 -0.09 Argentina peso (parallel) 155 3.87 (Reporting by Shreyashi Sanyal in Bengaluru)