* Peso set to lose 2.7% this week * Latam FX down this week * Argentine stocks near record highs By Ambar Warrick May 21 (Reuters) - Most Latin American currencies traded sideways on Friday but were set to lose for the week on fears of policy tapering by the Federal Reserve, while political concerns and falling copper prices saw Chile"s peso lag its peers. The peso rose 0.4% on Friday but was set for a weekly loss of about 2.7%, its worst in nearly two months, due to fears of radical policy in Chile after its ruling party failed to secure a majority in the body that will draft the new constitution, with independent candidates getting more votes. 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 were muted, with MSCI"s regional index trading sideways and set to lose about 0.4% 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. "If the Fed really were to move towards a taper debate the dollar might gain ground considerably. However, for that to happen the debate would have to start properly - whenever that may be; first cracks in the previously unanimous front are not sufficient," Antje Praefcke, FX and EM analyst at Commerzbank wrote in a note. Colombia"s peso, which fell 0.3% on Friday, 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. Analysts predicted ratings agency Fitch would likely downgrade the country this year, owing to ongoing anti-government protests, as well as stretched fiscal spending due to the COVID-19 outbreak. Brazil"s real was flat and set for mild weekly losses, while Mexico"s peso fell 0.1% and was set to end the week largely unchanged. 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: Latest Daily % change MSCI Emerging Markets 1332.42 0.23 MSCI LatAm 2472.23 -0.48 Brazil Bovespa 122450.43 -0.2 Mexico IPC 49751.48 -0.31 Chile IPSA 4079.99 1.23 Argentina MerVal 0.00 0 Colombia COLCAP 1264.63 0.8 Currencies Latest Daily % change Brazil real 5.2921 -0.32 Mexico peso 19.9143 -0.27 Chile peso 718.12 0.36 Colombia peso 3729.93 -0.40 Peru sol 3.71 0.00 Argentina peso 94.2700 -0.02 (interbank) (Reporting by Ambar Warrick in Bengaluru; Editing by Kirsten Donovan) Our Standards: The Thomson Reuters Trust Principles.