* Brazil stocks recover sharply from near 1-year low * Mexican peso at 3-week low (Adds details, updates prices) By Susan Mathew and Ambar Warrick Nov 1 (Reuters) - Mexico"s peso slipped 1.4% on Monday, extending losses after data last week had shown an economic contraction, while most other Latin American currencies retreated amid caution ahead of a Federal Reserve meeting this week. Data last week showed Mexico"s first economic contraction since a recovery began from the coronavirus pandemic, posing a challenge to the central bank"s monetary policy tightening cycle amid stubbornly high inflation, which analysts see taking precedence. The peso, which fell 1.8% last week, extended declines to a fifth straight session and hit a three-week low. "Mexico faces a more challenging outlook as the economy slows heading into 2022 ... Banxico will continue to hike rates as core inflation remains under pressure, adding yet more downside risks for growth ... political risks will remain elevated, further clouding the outlook for 2022," emerging market economists at TS Lombard said. COVID-19 vaccine rollouts and the trajectory of the virus are other factors to be watched, they said. "That said, external demand will still provide a key boost to the economy and strong remittances will continue to support domestic consumer spending." Brazil"s real fell 0.5%, in line with broader EM peers, with all eyes on the Fed"s meeting on Tuesday and Wednesday when the U.S. central bank is expected to announce the start of a reduction in its bond purchases and perhaps hint at the timeline for future interest rate hikes. The dollar traded steady on Monday. Markets in Chile, Colombia and Peru were closed for local holidays. Among stocks, Brazilian fast food chain operator BK Brasil Operacao e Assessoria a Restaurantes soared 9% after it announced it had canceled an agreement with private equity firm Vinci Partners to acquire Domino"s Pizza Brasil. Brazil"s Bovespa index jumped 2.2%, boosted by financials and energy companies as it recovered from near one-year lows. Brazilian President Jair Bolsonaro said on Monday that dealing with high fuel prices in the country is his top priority right now, adding that he sees the privatization of Petrobras as an "ideal" move. Petrobras" shares jumped 3.6%. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1263.59 -0.09 MSCI LatAm 2127.10 0.88 Brazil Bovespa 105726.87 2.15 Mexico IPC 51714.36 0.79 Argentina MerVal 86779.65 3.852 Currencies Latest Daily % change Brazil real 5.6682 -0.48 Mexico peso 20.8268 -1.35 Argentina peso 99.8100 -0.08 (interbank) (Reporting by Susan Mathew and Ambar Warrick in Bengaluru Editing by Paul Simao and Sandra Maler)