* Chile"s peso down over 1% * U.S. payrolls elicit mixed market reaction * Latam stocks rise, head for weekly losses (New throughout, updates prices, market activity and comments) By Ambar Warrick and Susan Mathew Oct 8 (Reuters) - Chile"s peso slumped on Friday to lead losses among Latin American currencies after inflation surged by more than expected, while Brazil"s stocks benchmark jumped more than 3%, their biggest daily gain in nine months. Chile"s peso dropped 1.6% to its weakest since May 2020, after data showed consumer price inflation in September surged well above central bank estimates. Chile has been grappling with high inflation as a strong COVID vaccination campaign spurred a swift return to economic normality. Investors have bet the central bank will pick up the pace and magnitude of rate hikes. The surprisingly high inflation in September, coupled with dollar purchases to shore up foreign exchange reserves, have led to the sharp decline in the Chilean peso, an FX trader said. U.S. non-farm payrolls were drastically below expectations, and emerging markets showed a mixed reaction as analysts largely said they still expect the U.S. Federal Reserve to taper monetary stimulus as planned. Brazil"s real was flat, headed for a weekly loss of about 2.7%. Data showed September consumer prices grew at their fastest pace for the month since 1994 due to higher fuel and electricity prices, but still rose less than expected. Surging inflation has pushed Brazil"s central bank into hiking interest rates five times this year, with more hikes to come. Stocks in Sao Paulo were last trading up 2.4% after rising as much as 3.3% during the session. Banks led broad-based gains, followed by consumer discretionary stocks. Still, the index is up only 0.5% for the week. Global markets were routed early this week on worries about Chinese debt and inflation fears, especially in Brazil where inflation is already well above the central bank"s target. Most other Latin American stocks also rose on Friday. Peru"s sol rose 0.2% in slim holiday trade as President Pedro Castillo confirmed the current President of the Central Bank Julio Velarde for another term. Overnight, the central bank had hiked the key interest rate to 1.5% as expected. The sol had surged 1% on Thursday as a cabinet reshuffle by Castillo was perceived positively by investors, in particular the appointment of new prime minister Mirtha Vasquez. Argentine markets were closed for a holiday. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 1257.22 0.31 MSCI LatAm 2231.58 1.44 Brazil Bovespa 113262.58 2.42 Mexico IPC 51286.88 0.81 Chile IPSA 4145.85 0.39 Colombia COLCAP 1403.55 0.72 Currencies Latest Daily % change Brazil real 5.5106 0.06 Mexico peso 20.6988 -0.27 Chile peso 823.9 -1.46 Colombia peso 3764.88 0.19 (Reporting by Ambar Warrick, Federica Urso, Froilan Romero; Editing by Alistair Bell and David Gregorio)