EMERGING MARKETS-Argentina's peso set for best week on record on pledged US support

By Nikhil Sharma and Pranav Kashyap

Sept 26 (Reuters) - Latin American markets perked up on Friday and were headed for a mixed weekly finish, as Argentine assets bounced back this week after Washington unveiled a bold rescue blueprint for the country's ailing markets.

Argentina dominated headlines as investors piled into local assets, buoyed by Washington's firm show of support and news of a potential $20 billion swap line under negotiation with the central bank.

The peso ARS=RASL jumped 1%, trading at near one-month highs and locking in a weekly gain of over 9% — its strongest on record and fully erasing losses from President Javier Milei's legislative stumble earlier this month.

The currency was also lifted by a multi-billion-dollar influx from agricultural exporters, after a temporary tax break spurred the farm sector to commit to selling $7 billion worth of exports.

Equities in Buenos Aires .MERV surged 0.9%, bringing weekly gains to 6%, the biggest jump since mid-May. Government bonds, meanwhile, took a breather after a strong rally earlier in the week.

But the momentum faces a critical test in October's midterm elections, where another setback for Milei's party could derail his austerity push and rattle investor confidence.

MSCI's index for Latin American currencies .MILA00000CUS edged up 0.2%, but was down 0.1% for the week, as it remained pressured by the U.S. dollar after data this week showed resilience in the American economy.

A regional equities gauge .MILA00000PUS was set to gain for the eight consecutive week. Peruvian equities .MXNUAMPESCPGPE were among the best performers alongside Argentina, up 3.1% in the week to date.

Mexican equities .MXX were up 0.6%, taking weekly gains to 1.8%, bolstered by an expected quarter-point interest rate cut by the central bank on Thursday as it balanced an unwieldy act of stimulating the economy against sticky inflation that threatens to breach the target rate.

The expected cut weighed on the local peso MXN=, which was set for only modest weekly gains. For the day, it was up 0.5%.

Brazil's real BRL= advanced 0.5%. Latin America's largest economy posted a smaller-than-expected current account deficit in August.

For the year, the currency was up 13.6% - among the top performers in its peer group, benefiting from a wider interest-rate differential with the United States. Brazil's central bank last week kept rates at a near two-decade high of 15%.

"We still see a relatively resilient economy and at the same time elevated inflation, and think that the market pricing of (Fed) cuts is way too aggressive," said Olga Yangol, head of EM Research and Strategy at Credit Agricole.

"The implication is that in this context, EM currencies that offer attractive carry are likely to stand out."

Sao Paulo's main stock index .BVSP edged up 0.2%, but was set for a weekly decline.

The Colombian peso COP= was steady on the day, but approached its first weekly decline in nine. Colombian stocks .COLCAP fared better, nearing a weekly rise.

Colombia's central bank is expected to hold the benchmark rate next week and continue this trend for the rest of the year.

Chile's peso CLP= neared a weekly loss and the Santiago stock index .SPIPSA was up 0.4% for the week.

Key Latin American stock indexes and currencies: