EMERGING MARKETS-Chile peso falls as copper drops, North Korea weighs

(Updates with final prices, context) SAO PAULO, Sept 8 (Reuters) - Chile's peso on Friday posted its biggest daily drop in four months as traders questioned whether a rally in copper that has underpinned the currency's upswing was justified, while geopolitical tensions weighed on other markets such as Mexico. Markets were cautious as South Korea waited out the risk of another missile test by North Korea on Saturday, the anniversary of its founding. North Korea marks the occasion each year with a big display of pageantry and military hardware. The Chilean peso weakened more than 1 percent to 620 to the dollar, snapping a string of four straight days of gains but still near two-year highs. The drop came on the heels of a decline in prices of copper, a key export, as traders booked profits on a 20 percent surge that began in June. Analysts have voiced skepticism that the industrial metal would continue to rise, given signs of stagnant demand from top consumer China. Chinese data for August showed imports of copper and copper products held steady for the fourth month in a row. Expectations that the Chilean central bank would react to the peso's recent strength by cutting interest rates also helped to temper those bullish on the currency, especially following weaker-than-expected August price figures. Still, some remained confident. Nomura strategists recommended clients bet that the Chilean currency would outperform the Mexican peso. "The sharp increase in copper prices could potentially front-load the country's process of investment recovery and accelerate an economic rebound," they wrote in a report. The Mexican peso slipped 0.3 percent, driven lower what North Korea could do next. Tension on the Korean peninsula has escalated as North Korea's leader, Kim Jong Un, has stepped up the development of weapons. It has tested a string of missiles this year, including one over Japan, and conducted its sixth nuclear test on Sunday. Apprehension over the expected arrival of lethal hurricane Irma in Florida also kept markets on edge. Key Latin American stock indexes and currencies at 2210 GMT:

Stock indexes daily % YTD % change change


MSCI Emerging Markets 1091.17 0.1 26.55 MSCI LatAm 2942.08 -0.39 25.7 Brazil Bovespa 73078.85 -0.45 21.34 Mexico S&P/BVM IPC 50083.80 -0.33 9.73 Chile IPSA 5091.81 -0.37 22.65 Chile IGPA 25475.58 -0.34 22.87 Argentina MerVal 24018.13 -0.96 41.97 Colombia IGBC 11210.11 -0.32 10.68 Venezuela IBC 279357.84 2.2 781.11 Currencies daily % YTD % change change


Brazil real 3.0945 0.24 5.00 Mexico peso 17.7150 -0.25 17.10 Chile peso 620.5 -1.05 8.09 Colombia peso 2906.5 0.05 3.27 Peru sol 3.232 0.06 5.63 Argentina peso (interbank) 17.2000 0.03 -7.70 Argentina peso (parallel) 17.83 -0.28 -5.66

(Additional reporting by Miguel Angel Gutierrez; Editing by Lisa Von Ahn and Lisa Shumaker)