EMERGING MARKETS-Brazil's real suffers worst month since May

* All eyes on expected U.S. stimulus measures next week

* Brazil's real up 0.6 pct on Fri, Mexican peso flat

* Month-end positioning helps real recoup some losses (Updates prices, adds comments)

By Samantha Pearson

SAO PAULO, Oct 29 (Reuters) - The Brazilian real rose on Friday but still recorded its biggest monthly loss since May as efforts by the government to curb its strength started to take effect.

Meanwhile, uncertainty over an expected announcement next week about U.S. stimulus measures prompted volatile trading across the region, keeping a lid on gains in the Mexican and Chilean pesos.

The real recorded a loss of 0.65 percent for October. That compared with a 1.1 percent monthly loss for the Chilean peso and a gain of 1.8 percent by the Mexican peso.

Brazil has introduced a series of tax rises this month in an effort to curb a recent rally in the real that is hurting exporters and widening the current account deficit.

Foreign investors have responded by sharply reducing positions in the currency derivatives markets. [ID:nN28128305]

Brazil's treasury also reduced its local bond issuance even further on Thursday, reflecting reduced demand from investors for the country's debt. [ID:nN28152112]

Some analysts think the government may be waiting until the Brazilian presidential election is over this weekend before announcing further measures.

Still, the real closed 0.64 percent stronger at 1.701 reais per U.S. dollar on the local spot market on Friday.

Local traders were bidding up the currency on the last day of the month in order to secure a higher so-called Ptax rate - the average rate taken from the spot market every day that is used as a reference to settle futures contracts. The higher the rate, the more money they can potentially make on these contracts.

Last month, the central bank announced it would crack down on this type of manipulation by calculating the rate as a simple average of the day's trading, rather than a volume-weighted average, as is currently the case. But the rule change does not take effect until July 2011. [ID:nN23234691]

"There is the battle over the Ptax as always and flows keep coming in," said Carlos Gandolfo, a partner at Sao Paulo's Pioneer brokerage.

However, he said volumes were very low ahead of the holiday weekend. A public holiday on Tuesday means many people will also take Monday off, even though it is the first trading day after the election, he said.

FED WAITING GAME

The main focus on trading floors remained stimulus measures in the United States.

The Federal Reserve is expected to announce next week a fresh round of monetary easing, which should keep returns on U.S. Treasuries close to record lows and encourage investors to buy more of Latin America's higher-yielding debt.

But doubts about how big that stimulus package will be have contributed to volatile trading in recent sessions.

The Mexican currency was flat at 12.3705 per dollar on Friday as the U.S. currency traded in a narrow range against a basket of the world's major currencies <.DXY>.

The country's central bank has a very light presence in the foreign exchange market, compared with other countries in the region. On Friday it sold dollar put options at auction worth $600 million. [ID:nMEX003885]

The Chilean peso , which has suffered heavy losses this month due to the threat of intervention, also traded flat at 489 per dollar.

Chile has moderated the pace at which it has hiked interest rates in an effort to slow the peso's gains.

Minutes from the central bank's October policy meeting released on Friday said the peso's sharp appreciation, along with slower inflation, points to a more gradual pace of interest rate hikes.[ID:nSAG002645] (Editing by Dan Grebler)