* Colombian c.bank hikes rates to 2.5% * Peru's sol best performer in Oct, up 3.4% * Brazil's real lags peers in Oct, down 3.6% (Writes through, updates prices) By Susan Mathew and Ambar Warrick Oct 29 (Reuters) - Colombia's peso recouped early losses on Friday after the central bank raised interest rates, while Mexico's peso headed for its worst day in a month after the country's economy shrank in the third quarter. The Colombian currency rose 0.3% from a more-than three-week low, after the central bank raised rates by 50 basis points to 2.50%, amid rising inflation levels in the country. The increase marked a second consecutive month the board has raised the rate, although members remained divided over the pace of hikes. The bank also raised its economic growth outlook for the year. Rate hikes have been a common trend across emerging markets this year, as more economies struggle to cope with rising inflation. "Financial conditions in Latin America have tightened sharply this year, most notably in Brazil and Chile, on the back of aggressive monetary tightening and growing political and/or fiscal risks," Capital Economics said in a note. "With these factors likely to persist, tight financial conditions add to growing headwinds facing recoveries in the region." Mexico's peso sank 1.1% after data showed the country's economy shrank in the third quarter, its first contraction since a sharp rebound from pandemic-driven lows. Still, the currency was set for mild gains in October. Mexican Deputy Finance Minister Gabriel Yorio reiterated the government's economic growth forecast of 6.3% this year. Peru's sol was the best performing Latin American currency in October, up 3.4% as moderate signals from the newly elected leftist government calmed some fears of disruptive market policies. On the other hand, Brazil's real severely lagged its peers with a 3.6% loss, as concerns over rising inflation were compounded by signals from the government that it intended to breach its fiscal spending cap. Chile's peso slipped 1.1% as data showed copper production, a major export, fell 6.9% year on year in September amid some shutdowns in the sector. Concerns over waning Chinese demand for the red metal have also stung the peso in recent sessions. Brazil's Petrobras beat quarterly profit expectations as rising crude prices helped its margins. But Brazilian President Jair Bolsonaro said the company is too profitable, criticizing its policy of pricing domestic fuel according to global rates. Petrobras shares fell 6%. Brazilian miner Vale sank 2.5% after third-quarter net profit came in significantly below analysts' forecasts, while a 60% sequential drop in quarterly net income pushed steelmaker Usiminas 5.7% lower. Key Latin American stock indexes and currencies: Latest Daily % change MSCI Emerging Markets 1263.31 -1 MSCI LatAm 2113.94 -1.64 Brazil Bovespa 104131.54 -1.49 Mexico IPC 51361.69 0.22 Chile IPSA 4110.91 0.36 Argentina MerVal 85405.44 -0.731 Colombia COLCAP 1394.85 -0.93 Currencies Latest Daily % change Brazil real 5.6352 -0.18 Mexico peso 20.5826 -1.06 Chile peso 814.94 -1.14 Colombia peso 3764.53 0.28 Peru sol 3.9907 -0.42 Argentina peso 99.7200 -0.03 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Alistair Bell and Marguerita Choy)