* Fitch downgrades Peru, S&P lowers outlook * Peru"s sol sole decliner in Latam, but up ~4% this week * Chile"s peso recovers from 17-month lows * Brazil"s real, Mexican peso up more than 1% (Rewrites throughout, updates prices) By Ambar Warrick and Susan Mathew Oct 15 (Reuters) - Mexico"s peso and Brazil"s real surged more than 1% on Friday against a steady dollar, while a downgrade and warnings by rating agencies saw Peru"s sol break a six-day winning streak. Peru"s sol was the biggest weekly gainer in Latin America, up about 3.5% - marking its best week in more than 30 years, as a more moderate turn by President Pedro Castillo calmed fears over market-unfriendly policy reforms. But it fell 0.4% on Friday after Fitch downgraded Peru"s credit rating by a notch to "BBB", just one notch away from junk territory. Fitch cited a steady erosion of Peru"s balance sheet as well a political volatility hurting investment and economic outlook. S&P cut Peru"s outlook to "negative" and warned of a 1-in-3 chance of downgrade over the next six months to two years if political noise continued to pressure economic performance. Data released on Friday showed Peru"s gross domestic product expanded 11.83% in August from a year ago, marking six straight months of economic growth. Most other Latam currencies firmed, with Mexico"s peso hitting a two-week high. Brazil"s real lifted further away from six-month lows. A Brazilian central bank official said the bank saw 12-month inflation peaking between this month and last month before subsiding toward the official target, adding that the bank was convinced its current pace of 100 basis points at each policy meeting would bring inflation back to target next year. Analysts shared the central bank"s view on inflation having peaked, but were skeptical about the short-term outlook. "Although inflation will likely ease in the coming months, we continue to expect an unfavorable outlook for H1/22. Against this backdrop, Banco Central will continue its tightening cycle, with rates reaching 9% in February 2022," analysts at TS Lombard wrote in a note. For the day, investors seemed to look past data that showed Brazilian economic activity fell slightly more than expected in August. Chile"s peso recovered 0.3% after hitting fresh 17- month lows during the session as copper prices surged in the their best week since 2016. A sharp interest rate hike this week gave the peso temporary relief, and along with Friday"s gain pushed the currency into positive territory for the week. But political noise threatens to be a source of volatility ahead of elections next month. Chile"s IPSA stock index slumped 4% this week, in its fourth straight week of losses. Most other Latam stock markets rallied, tracking handsome gains on Wall Street, and looked to end the week in the black. Key Latin American stock indexes and currencies: Stock indexes Latest Daily % change MSCI Emerging Markets 1283.94 1.36 MSCI LatAm 2293.50 2.11 Brazil Bovespa 114515.69 1.18 Mexico IPC 52662.09 1 Chile IPSA 3977.76 -0.47 Argentina MerVal 81381.91 1.552 Colombia COLCAP 1427.57 0.77 Currencies Latest Daily % change Brazil real 5.4559 1.09 Mexico peso 20.3285 1.04 Chile peso 823.4 0.19 Colombia peso 3761.2 0.16 Peru sol 3.9279 -0.25 Argentina peso (interbank) 99.1800 -0.02 (Reporting by Ambar Warrick; Editing by Kirsten Donovan and Richard Chang) Our Standards: The Thomson Reuters Trust Principles.