* Chilean peso set to lose 2.5% this week * Latam FX down this week * Argentine stocks near record highs (Updates prices throughout, adds comment) By Ambar Warrick and Shreyashi Sanyal May 21 (Reuters) - Mexico"s peso fell on Friday after the government said it would replace central bank head Alejandro Diaz de Leon after his term ends this year, while Chile"s peso led losses for the week on political concerns and falling copper prices. The Mexican peso fell 0.5% after President Andres Manuel Lopez Obrador said he would not propose a new term for Governor Leon after his tenure ends on Dec. 31, and instead nominate an economist with "social dimension." The move comes amid speculation that the central bank will begin hiking rates this year, as inflation in Mexico heats up. "We have had precedents where finance ministers or those type of people come in and it brings the central bank and the (government) administration closer together, which brings the question of central bank independence, but we will have to wait and see", said Viktor Szabo, a portfolio manager at ABRDN. Chile"s peso rose 0.4% but was set for a weekly loss of 2.5%, its worst in nearly two months, after the country"s ruling party failed to secure a majority in the body that will draft the new constitution, with independent candidates getting more votes. "We continue to think the (Chilean) peso will hold up better than most EM currencies this year – while political uncertainty is a key risk to that view, the peso already appears to discount a substantial risk premium," Jonas Goltermann, senior markets economist at Capital Economics wrote in a client note. A drop in copper prices also hurt the currency of the world"s largest producer of the red metal, while no. 2 producer Peru"s sol was set to lose about 1.7% this week. Chilean stocks lagged their peers this week with a more-than 10% loss. Broader Latam currencies fell, with MSCI"s regional index down 0.3%, and was set to lose about 0.8% this week. Risk-driven assets, particularly in emerging markets, tumbled earlier in the week after the minutes of the Fed"s last meeting showed more talk of stimulus tapering at the bank than previously thought. While the deadline for the Fed to consider tapering is still a way off, investors fear a continued rise in U.S. inflation could bring the date forward. Colombia"s peso, which fell 0.7%, was also set to lose more than 1% this week, after S&P Global Ratings downgraded the country to "junk," or sub-investment grade, status. Brazil"s real shed 1.3% and was set for its worst week in nearly two months. Argentina"s peso was flat. The country said it will tighten COVID-19 lockdown measures due to a severe second wave of the virus. However, Argentine stocks recently hit record highs as tight capital controls on the peso saw equities become the favored means of retaining exposure to the country. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 1328.89 -0.03 MSCI LatAm 2451.17 -1.33 Brazil Bovespa 122186.29 -0.42 Mexico IPC 49643.55 -0.53 Chile IPSA 4079.99 1.23 Argentina MerVal 56438.44 -1.175 Colombia COLCAP 1246.12 -0.68 Currencies Latest Daily % change Brazil real 5.3460 -1.33 Mexico peso 19.9546 -0.47 Chile peso 719.4 0.00 Colombia peso 3744.75 -0.79 Peru sol 3.752 -1.12 Argentina peso (interbank) 94.2700 -0.02 Argentina peso (parallel) 150 3.33 (Reporting by Ambar Warrick and Shreyashi Sanyal in Bengaluru; Additional reporting by Marc Jones in London; Editing by Richard Chang and Marguerita Choy) Our Standards: The Thomson Reuters Trust Principles.