* Mexico peso down 0.37 pct, Chile peso dips 0.06 pct
* Fears of possible Portugal bailout hit risk appetite
* Investors seeing losses as chance to jump into debt
By Michael O'Boyle
MEXICO CITY, March 23 (Reuters) - Mexico and Chile's pesos dipped on Wednesday on global jitters about Portugal, but investors took advantage of the decline to put on fresh bets in favor of Latin American currencies and the region's high-yielding debt.
Worries that a political crisis in Portugal could topple the government -- as it did late in the day -- and force the country to seek a bailout hit the euro, pushing investors to sell riskier assets like stocks and emerging market currencies.
Worries about Japan's nuclear crisis and higher crude oil prices due to unrest in the oil-producing Arab world also kept investors on edge.
"Despite all these risks, we are still seeing flows of foreigners into our debt market," said Salvador Orozco, a currency and debt strategist at Santander in Mexico City.
Solid growth and much higher interest rates than developed economies have supported big bets on Latin America's currencies by yield-hungry global investors.
The yield on Mexico's 10-year bond
Investors have been piling into shorter-term debt like Mexico's T-bills, known as Cetes, as they take advantage of the spread between low-rate loans available in currencies like the dollar and higher yields in emerging market investments.
Europe's major economies were still doing well and the debt crisis there was unlikely to derail global growth and eventually hit Latin America's economies, analysts said.
"Latin America's fundamentals will not be contaminated (by a Portugal bailout)," said Roberto Melzi, a strategist at Barclay's Capital in New York.
Mexico's peso
The currency could face further short-term losses if the cost of pesos in dollars rises above 12.05 per dollar, near its 50 day-moving average, but steeper losses may be quickly contained.
"So far, foreign investors are looking at losses as a chance to get in at a good level," Orozco said.
Traders said the peso could maintain a tendency to strengthen that has been seen since November on an improving outlook for the U.S. economy.
Brazil's real
The government could soon implement new measures to contain the currency's gains as it trades close to a 1.65 per dollar level, seen as the government's unofficial limit.
The Chilean peso
Chile's currency has snapped back 1 percent from a nearly seven-week low it hit last week. Concerns about higher crude prices have hit Chile hard, since it imports most of its oil.
But expectations that Chile will keep raising interest rates at the same pace of last week's surprise 50-basis-point hike are seen helping the currency recover.
Fresh intervention from Chilean authorities is seen as unlikely as policymakers step up their fight against inflation.
"Chile's fundamentals are very strong, and the central bank has also realized it cannot subordinate monetary policy to FX policy," Barclay's Melzi said.
The central bank introduced a program to buy $50 million a day in January. Policymakers held interest rates steady in January to back up the program, but inflation expectations deteriorated and policymakers responded with a bigger hike. (Editing by Dan Grebler)