(Updates prices, adds analyst quotes, Latam currencies, Poland zloty; SAO PAULO dateline)
By Asher Levine and Sujata Rao
SAO PAULO/LONDON, Feb 10 (Reuters) - Brazil's real weakened on Monday as traders corrected an overdone rally, while Hungary's forint dropped on concerns the central bank may cut interest rates further.
The real ended a four-day advance against the dollar, losing 0.66 percent and nearly erasing the previous two sessions' gains. The Chilean and Mexican pesos also weakened modestly.
The trading environment for emerging assets was generally positive, however, after soft U.S. jobs data on Friday reduced expectations that the Federal Reserve might speed up the rate of tapering of its monetary stimulus.
"The market read the U.S. payroll numbers on Friday as weak and expected the Fed to be more cautious with any tapering," said Gustavo Mendonca, an economist with Saga Capital in Rio de Janeiro. "We've had a bit of euphoria and today's move is a normal correction."
MSCI's emerging equity index edged down 0.1 percent as Brazil's Bovespa nearly erased the previous session's gains.
Investors are expected to remain cautious before this week's testimony in Congress by Janet Yellen, the new head of the Federal Reserve. She is known for her support of ultra-loose U.S. monetary policy, traders said.
The Hungarian forint dropped 1.27 percent against the dollar, reflecting nervousness before the central bank's meeting next week and the publication of data late this week which could show a fall in inflation to record lows and possibly into negative territory.
"That (inflation fall) will probably make the NBH (central bank) dangerously comfortable with the ultra-dovish stance, and(the forint) will continue to incorporate that in its price," Citigroup said in a note.
Turkey's lira weakened slightly and Turkish stocks eased 0.72 percent after Standard and Poor's cut the outlook on Turkey's rating to negative from stable on Friday, citing unpredictable policies and risks of economic shocks.
Ulrich Leuchtmann, a currency strategist at Commerzbank in Frankfurt, said the S&P move was hitting sentiment on the lira, which has clawed back some January losses after big rate hikes at the end of last month.
"We had quite a good week for the lira last week and there is not much room for further recovery, as the central bank is not creating confidence that it has a monetary policy that makes the lira attractive. The rate hike only took place because the market forced it," Leuchtmann said.
The day's outperformer was Ukraine's hryvnia, which rose as much as 1.5 percent to an 11-day high after the imposition of capital curbs which slapped restrictions on some types of foreign currency purchases.
The move has stabilised the currency, boosting it almost 5 percent from 4-1/2-year lows hit last Wednesday.
The central bank offered to buy dollars at 8.49 hryvnia per dollar, compared with 8.54 on Friday. But five-year credit default swaps rose 38 basis points to 1,088 bps, their highest level in two months, according to Markit.
Leuchtmann said the currency would enjoy only a short-term gain from the capital controls.
"It leads to stabilisation but it is something that will hurt the hryvnia in the medium- to long run, making it much more difficult to attract foreign capital in the future."
Fitch cut Ukraine's rating by two notches on Friday to CCC from B- and kept the outlook at negative, citing rising political instability.
Poland's zloty snapped a five-day rally against the dollar. Central bank policymaker Andrzej Rzonca told Reuters he expects the economy to grow at a nearly 4 percent rate and sees no reason to extend the bank's forward guidance on leaving interest rates unchanged at least until the end of June.
Editing by Pravin Char and Dan Grebler