* EM stocks index headed for 1.2% weekly declines * Chilean peso firms as economic activity jumps * Venezuela to subtract six zeros from currency By Shreyashi Sanyal Oct 1 (Reuters) - Most emerging market currencies firmed against an easing dollar on Friday, with the Mexican peso and South Africa"s rand leading gains, while stocks marked a dour start to the fourth quarter on slowing growth and rising inflation worries. Investor-favorite carry trade currencies like Mexico"s peso and the South African rand rose about 0.7% each, as the dollar retreated from gains made earlier in the day on bets that U.S. Federal Reserve will be tightening its monetary policy much sooner than expected. A carry trade is when investors borrow in a low-yielding currency to invest in higher-yielding assets, which has often helped these currencies stay afloat and outperform regional peers this year. Mexico"s peso is headed for weekly declines of over 2%, while the rand tracked nominal gains for the week. The Brazilian real also firmed against the dollar, but was still set for declines of 1.1% for the week. Chile"s peso found support from a bounce in prices of its main export, copper, to rise 0.5% off 15-month lows. The currency slipped 10% last quarter and is set for weekly declines of 1.6%. Data showed Chile"s economic activity jumped 19.1% in August versus the same period the previous year. The MSCI"s emerging market stocks index fell 0.4%, for the third time this week as data showed weakening manufacturing activity across Asia as well as Russia in September due to curbs to contain the latest wave of the coronavirus pandemic, as well as indications of slowing growth in China. The index is set for weekly declines of 1.2%, while its Latin American counterpart fell 2.5% for the week. However, analysts are positive on emerging market equities based on current valuations. "They (EM stocks) trade at a discount to the developed world despite strong growth potential and headroom for credit consumption," strategists at Franklin Templeton wrote in a client note. "Latin America is rich in natural resources and looks to benefit from the commodity boom taking place amid the recovery from the pandemic." In other parts of Latin America, Venezuela will launch its second monetary overhaul in three years by cutting six zeros from the bolivar in response to hyperinflation, simplifying accounting but doing little to ease the South American nation"s economic crisis. The International Monetary Fund said on Thursday that its board had approved an agreement with Ecuador to revise the terms of a financing deal reached last year, and would immediately disburse some $800 million to the South American country. Key Latin American stock indexes and currencies at 1326 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1248.60 -0.36 MSCI LatAm 2251.54 1.04 Brazil Bovespa 111091.43 0.1 Mexico IPC 0.00 0 Chile IPSA 4357.13 -0.13 Argentina MerVal 0.00 0 Colombia COLCAP 1361.95 0.11 Currencies Latest Daily % change Brazil real 5.3979 0.94 Mexico peso 20.4840 0.71 Chile peso 803.1 0.96 Colombia peso 3774.61 0.81 Peru sol 4.1225 -0.05 Argentina peso (interbank) 98.7700 -0.02 Argentina peso (parallel) 183 2.19 (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Giles Elgood) Our Standards: The Thomson Reuters Trust Principles.