Brazil's real retreated from six-week peaks on Tuesday amid worries the country will overshoot its spending cap, while most other Latin American currencies firmed as the dollar slipped ahead of a US Federal Reserve policy announcement.

Globally, sentiment was upbeat after strong China industrial output and retail sales data kept hopes of a steady economic recovery alive.

The Fed kicked off its two-day meeting on Tuesday with investors waiting to see if the central bank would switch its Treasury purchases toward more long-dated debt to keep long-term yields low.

MSCI's index of Latam currencies hit a seven-week high but lost a chunk of its increase as Brazil's real gave up early gains of as much as 1%.

Brazilian President Jair Bolsonaro said he will not reduce welfare payments for retirees or disabled people, adding that 'Renda Brasil' - a rebranded welfare scheme that Economy Minister Paulo Guedes had suggested could be funded by cuts to other programs - will be scrapped.

On Wednesday, focus will be on the central bank, which is expected to keep Brazil's benchmark Selic rate unchanged at a record low of 2%.

"In Brazil ... we continue to be somewhat optimistic on the back of growth keeping its strong momentum during the past few months," said analysts at Morgan Stanley. "If sustained, it should make the central bank more comfortable halting its easing cycle, something that should support the real on the margin."

They expect Brazil to keep its fiscal framework broadly unchanged and see this as essential to keep economic momentum going.

Mexico's peso was flat, attempting to resume its climb toward pre-pandemic levels. The currency is up almost 4% so far this month in what could be its third straight month of gains.

But Morgan Stanley analysts say they are reluctant to chase the rally as markets may be underpricing some risks, including the recent rise making the peso relatively expensive. They also point to volatility around US elections in November.

Chile's peso rose 0.7% as prices of copper soared, while crude exporter Colombia's peso tracked oil prices higher.

Stocks in the region were mixed with Chile's IPSA index and Mexico's Ipc index rising in tandem with Wall Street, while main indexes in most other Latam countries moved lower, with Brazil's Bovespa down 0.2% on a financials drag.