* LatAm stocks, currencies rally on increased risk appetite

* Mexican March industrial output falls less than expected

* Brazil's economy adds jobs for 3rd month in April

* Chilean economy contracts 2.1 pct in 1st quarter

By Walter Brandimarte

NEW YORK, May 18 (Reuters) - Latin American financial
markets rallied on Monday, with stocks recouping almost all of
the losses incurred last week as positive economic data
bolstered investors' appetite for risk.

The MSCI stock index for Latin America .MILA00000PUS
jumped 4.02 percent to nearly the same level at the beginning
of last week, which was the highest since early October.
Regional markets were led higher by gains of more than 5
percent in Brazil's benchmark Bovespa index .BVSP.

Yield spreads between emerging market bonds and U.S.
Treasuries, a key gauge of investors' aversion to risk,
tightened 16 basis points to 484 basis points on the benchmark
JPMorgan's EMBI+ index 11EMJ.

Investor sentiment was boosted by several reports of
positive news, from better-than-expected results by No. 2 U.S.
home repair retailer Lowe's Cos Inc (LOW.N: Quote, Profile, Research) to a
milder-than-forecast drop in Mexico's industrial output and a
third consecutive month of positive jobs data in Brazil.

"The day was full of exciting news, which brought investors
back to the market," said Nicholas Barbarisi, director at Hera
Investment in Sao Paulo.

In another incipient sign that the Brazilian economy is
beginning to bounce back, a government report showed 106,205
payroll jobs were created in April, the third consecutive month
of improving jobs data. For details, see [ID:nN18348344].

The Brazilian currency, the real (BRBY: Quote, Profile, Research), closed 1.59
percent stronger at 2.076 per U.S. dollar.

In Mexico, the benchmark IPC stock index .MXX climbed
2.54 percent while the peso MXN= gained 1.68 percent to
13.0349 per dollar after better-than-expected economic data.

Industrial production in Latin America's second-largest
economy fell 6.7 percent in March from a year ago, less than
the 8.41 percent drop on average expected by economists.
Analysts said, however, that a calendar effect boosted March's
reading. [ID:nN18365937]

Chile's blue-chip IPSA stock index .IPSA rose 3.1
percent, in line with external markets. Earlier, the government
said the country's gross domestic product shrank 2.1 percent in
the first quarter, in line with market expectations. It was the
first economic contraction in the commodity-exporting country
in 10 years. [ID:nN18336493]

Latin American sovereign bonds also posted gains. The
benchmark Brazilian global bond due in 2040 BRAGLB40=RR, the
most liquid of its asset class, rose 0.438 point to bid
131.188, close to its highest price for the year.
(Additional reporting by Aluisio Alves in Sao Paulo; Editing
by Dan Grebler)