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* Brazil's real slips 0.5 pct, Mexican peso down 0.4 pct
* Opposition party's gains in Brazil make traders nervous
* Chilean central bank to raise rates at Thursday meeting
By Caroline Stauffer and Samantha Pearson
MEXICO CITY/SAO PAULO, Oct 14 (Reuters) - Latin American currencies weakened on Thursday, retreating from important technical levels after U.S. employment data stoked concerns about the U.S. economic recovery.
Mexico's peso weakened 0.42 percent to 12.4374. The peso appreciated to the 12.35 level earlier in the session, which triggered a round of profit-taking that took the currency to its session high of 12.4757.
Expectations the U.S. Federal Reserve will flood the U.S. market with cash by purchasing U.S. debt to drive borrowing costs lower have lifted demand for higher-yielding assets, spurring an extended rally in Latin American currencies.
But expectations of monetary easing in the world's largest economy, fueled by data showing a rise in U.S. weekly jobless claims on Thursday, also demonstrate fundamental weakness in the world's largest economy, where Mexico sends 80 percent of its exports.
"We're seeing the reality now and not the rate," said Alfredo Puig, a trader at brokerage Vector in Monterrey, Mexico.
The Brazilian real
Traders were quick to take profits after the currency broke through the closely watched level of 1.65 reais per dollar. Speculation has mounted that the government is preparing fresh measures to deal with the real's rally, after a tax hike on foreign purchases of bonds last week did little to curb inflows.
Brazil is also preparing for the second round of its presidential elections.
Ruling party candidate Dilma Rousseff, who had been expected to sail to an easy victory this month, has been steadily losing votes to opposition candidate Jose Serra, which has made traders nervous.
Serra is expected to take a much more proactive role in the market, taking more measures to weaken the currency and protect exporters.
"There is some uncertainty over the shrinking gap between Dilma and Serra," said Carlos Gandolfo, a partner at Sao Paulo's Pioneer brokerage.
CHILE EYES CENBANK
The Chilean peso
Interest rate futures show the market expects the central bank to raise its benchmark interest rate by 25 basis points to 2.75 percent at its Thursday meeting.
Minutes of the central bank's September rate-setting meeting released last week showed bank board members had considered a 25 basis point increase last month and saw the peso's recent appreciation possibly impacting monetary policy.
"Specifically, the minutes mention both the appreciation of CLP and falling inflation expectations as reasons to, at that meeting, adopt a slower pace of policy tightening," a report from Nomura Securities said.
The Chilean peso has soared over recent months, partly due to a rally in the price of copper, the country's main export. (Additional reporting by Brad Haynes and Froilan Romero in Santiago; Editing by Dan Grebler)