* Chilean c.bank sees below-neutral policy for next 2 years * Magazine Luiza leads Brazil stocks higher * Mexican peso under pressure from recent COVID spike By Ambar Warrick July 15 (Reuters) - Chile"s peso led losses across Latin American currencies on Thursday as the central bank indicated that monetary policy would remain loose for longer, while most other units came off a series of strong sessions. The peso dropped 1.2% as the central bank projected monetary policy to remain below neutral levels for the next two years here. This came after the bank hiked rates to 0.75%, citing a pickup in local economic growth and inflation. Still, the dovish outlook means Chilean lending rates will largely lag their emerging market peers. Brazil and Mexico, for instance, have hiked rates to 4.25% each this year, as economic growth and inflation heats up. While Chile"s interest rates sinking to 0.5% have been a symptom of the COVID-19 pandemic, the bank had been steadily cutting rates since mid- to late-2019 as a series of violent anti-government protests disrupted economic activity. Focus is now on the drafting process of a new Chilean constitution, which investors fear could introduce radical changes to market policy. "We see very limited value in the monetary policy committee’s dovish unconditional medium-term guidance, particularly in the context of fiscal policy in hyper-drive," Goldman Sachs analysts wrote in a note. "A significant improvement in the COVID backdrop, above target headline and core inflation and supportive external backdrop have reduced to a very significant extent the need for monetary policy to continue to support the recovery." Goldman Sachs sees Chilean rates between 1.5% to 1.75% by end-2021, while Credit Suisse sees them at 1.5%. MSCI"s index of Latin American currencies dropped 0.3% after rallying nearly 3% this week, as strong regional economic growth and positive cues from commodity markets helped offset fears of early policy tightening by the U.S. Federal Reserve. The index had surged 1.2% on Wednesday after Fed Chair Jerome Powell reassured markets that monetary policy would stay loose for the time being. Mexico"s peso fell 0.4% on Thursday, coming under pressure from a recent spike in COVID-19 cases in the country. Brazil"s real fell 0.2% after surging 1.8% on Wednesday, driven by a sharp upgrade to annual economic growth forecasts by the government. Latin American stocks rose slightly in early trade. Magazine Luiza jumped 5.9%, leading gains across Brazil stocks , after it said it will raise more funds and buy e-commerce company Kabum Comercio Eletronico for 1 billion reais ($196.53 million). Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1349.97 0.88 MSCI LatAm 2606.88 0.14 Brazil Bovespa 128552.59 0.11 Mexico IPC 49796.87 0.73 Chile IPSA 4147.81 -0.25 Argentina MerVal - - Colombia COLCAP 1279.09 -0.42 Currencies Latest Daily % change Brazil real 5.0934 -0.19 Mexico peso 19.9557 -0.44 Chile peso 753.55 -1.18 Colombia peso 3808.92 -0.50 Peru sol 3.965 -0.29 Argentina peso 96.1800 -0.02 (interbank) (Reporting by Ambar Warrick Editing by Sonya Hepinstall)