* U.S.-Mexico economic talks in focus * Chile copper exports surge * Argentine stocks hit record high (Adds details, updates prices) By Susan Mathew and Ambar Warrick Sept 7 (Reuters) - Latin American currencies weakened on Tuesday, with Chile"s peso leading loses as rising U.S. Treasury yields sent the dollar rallying, while El Salvador became the first country in the world to adopt bitcoin as legal tender. El Salvador"s adoption of the cryptocurrency, which will serve alongside the U.S. dollar, suffered teething problems when the government had to unplug a digital wallet to cope with demand. President Nayib Bukele said El Salvador holds 400 bitcoins. He expects the move to be beneficial for the country and for remittances, but polls show Salvadorans remain somewhat skeptical considering its volatility. Analysts fear the move may fuel money laundering and financial instability. It has already muddied the outlook for more than $1 billion in financing that El Salvador is seeking from the International Monetary Fund. This comes as a mandate over the weekend allowed for the president to stand for re-election. "Market participants are likely to read this as another move consolidating power around the executive, and one which is likely to generate even more delays with the ongoing IMF negotiations," strategists at Citi said in a note. "We were skeptical on the recent rally in El Salvador bonds... Uncertainty created by (re-election) news will weigh negatively on bonds." As the dollar made up for recent losses, Chile"s peso fell 1% to lead losses across the region as prices of its biggest export, copper, retreated on concerns over Chinese demand. Still, data showed Chilean copper exports soared 40.5% in value in August from a year ago, as prices of the metal hit record highs this year. Mexico"s peso broke a seven-session winning streak, down 0.1% ahead of its 2022 budget proposal expected to be presented on Wednesday. Focus is also on upcoming high-level economic talks between Mexican and U.S. ministers this week. "In the absence of a comprehensive fiscal reform proposal, expenditure cuts and use of assets will likely be needed again," said Citi strategists. "As has been the case, we anticipate a commitment to conservative fiscal targets and focus on (President Andres Manuel Lopez Obrador"s) spending priorities." Brazil markets were closed for a holiday. Stocks in the region fell, in line with world stock markets, as growth worries spooked markets. But Argentine stocks raced to record highs as data showed industrial output jumped 13% in July, indicating that a post-COVID economic recovery was on track. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1325.18 0.06 MSCI LatAm 2467.18 -0.49 Mexico IPC 51894.67 -0.74 Chile IPSA 4418.05 -0.86 Argentina MerVal 78478.36 3.257 Colombia COLCAP 1322.97 -0.31 Currencies Latest Daily % change Mexico peso 19.9200 -0.06 Chile peso 780.56 -1.07 Colombia peso 3796.53 0.03 Peru sol 4.0838 0.18 Argentina peso 97.9800 -0.02 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Angus MacSwan and Dan Grebler) Our Standards: The Thomson Reuters Trust Principles.