* MSCI Latam FX index on track for worst day in five months * Oil prices lift Colombian peso * Colombia"s new deficit forecast raises downgrade prospect -CS By Susan Mathew March 5 (Reuters) - Latin American currencies cut some early losses on Friday as the dollar stayed at multi-month highs but gave back gains made after upbeat U.S. jobs data, while surging oil prices buoyed Colombia"s peso despite rating downgrade risk. The Colombian peso slid as much as 0.7% before rising 0.5%, as crude prices hit 14-month highs after OPEC+ decided to extend output cuts. Colombia"s 2021 fiscal deficit forecast on Thursday came in well above market expectations, with the finance ministry changing its projection for the deficit to 8.6%, from a previous deficit prediction of 7.6%. "The revision of the 2021 fiscal deficit increases the importance of presenting an ambitious fiscal reform in the short-term," said Credit Suisse analyst Juan Lorenzo Maldonado. "Without strong and actionable guidance in the short term, Colombia may be unable to avoid a downgrade in its sovereign debt ratings to below investment grade status by either Fitch or S&P before the end of the year." MSCI"s index of Latam currencies was down 1.5%, en route to post losses for a third straight week, as the greenback stayed buoyant due to the Fed"s inaction on rising U.S. treasury yields. A rise in nominal and real U.S. yields over the past three days saw emerging market hard-currency bonds come under selling pressure. The premium demanded by investors to hold hard-currency EM sovereign debt over safe-haven U.S. Treasuries has risen by 7 points to 358 points since Wednesday. "If you have a global rise in yields, fixed income is clearly not going to have a good year," said Viktor Szabo at Aberdeen Standard Investments. The dollar spiked after the Labor Department said U.S. nonfarm payrolls surged by 379,000 jobs last month, topping expectations of an increase of 182,000 jobs, but subsequently pared some gains. Risk currencies took a hit, with the real down 0.3%, while Mexico"s peso slipped as much as 1.4% and hit four-month lows before making up some losses. Data on Friday showed industrial production in Brazil rose in January but at the slowest rate in nine months, offering another indication that the wider economic recovery is losing steam. As Wall stocks indexes jumped after the payrolls data, Latam followed suit, with Brazil"s Bovespa up 1.5%, putting it on track for a weekly gain of nearly 4% - the best week in a month. Chile"s IPSA rose for a fourth session in five, also looking to post its best week since Feb.5. Key Latin American stock indexes and currencies at 1436 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1339.13 -0.54 MSCI LatAm 2249.38 -0.86 Brazil Bovespa 114345.09 1.47 Mexico IPC - - Chile IPSA 4746.50 0.98 Argentina MerVal 48243.39 0.91 Colombia COLCAP 1344.34 0.54 Currencies Latest Daily % change Brazil real 5.6759 -0.28 Mexico peso 21.2208 -0.48 Chile peso 731.1 0.07 Colombia peso 3623.63 0.54 Peru sol 3.6867 -0.14 Argentina peso 90.3600 -0.07 (interbank) (Reporting by Susan Mathew in Bengaluru and Karin Strohecker in London; Editing by Dan Grebler)