EMERGING MARKETS-FX set for strong weekly gains, Turkey's lira lags after inflation spike

* Lira worst performer this week, down nearly 10%

* Mexico's peso, Russian rouble lead weekly EM gains

* Rouble heads for best week since April 2020, up 2.9%

* EMFX in for tough 2022- poll

By Ambar Warrick

Dec 3 (Reuters) - Emerging market stocks and currencies retreated on Friday in cautious trade ahead of key U.S. employment data, but were set for strong weekly gains on hopes that the impact of the Omicron coronavirus variant would be limited.

Turkey's lira lagged its peers, sinking 1% after annual inflation rose more than expected in November to a three-year high of 21.31%.

The lira was set to lose about 9.7% this week, following the appointment of a new finance minister and President Tayyip Erdogan's recommitment to keep interest rates low.

Ratings agency Fitch also downgraded Turkey's outlook to "negative", citing risks from the direction of monetary policy.

"This (inflation) is really increasing the pressure on Turkish authorities to do something. If they wait, give it two or three months, you would be looking at inflation between 25% to 30%," said Jakob Christensen, chief analyst and head of emerging market research at Danske Bank.

Broader emerging market (EM) currencies fell against a stronger dollar on Friday, as investors awaited U.S. data that could open the door to early policy tapering by the Federal Reserve.

MSCI's index of EM currencies fell 0.1%, but was set to end the week with a 0.4% gain, its best since mid-October. Stocks fell 0.4% on Friday but were set to add 0.6% this week.

Emerging markets are still recovering from last week's shock sell-off caused by the Omicron variant news.

Mexico's peso was set to outpace its EM peers this week with a 2.95% jump to the dollar, while Russia's rouble and the Polish zloty led gains across Europe, the Middle East, and Africa.

The rouble in particular was set to jump nearly 2.9% this week, its best since April 2020, as Russia's central bank governor hinted at a sharp interest rate hike this month amid surging inflation.

"There is some hope that the Omicron may not be dangerous as people thought, so that is giving some rebound in the EM space, as they are quite vulnerable to these viruses," Danske Bank's Christensen said.

Still, the outlook for most EM currencies in 2022 appears to be deteriorating, between fears of the Omicron variant, the prospect of policy tightening by the Fed and slowing economic growth in China, a Reuters poll found.

JPMorgan data also showed EM retail local currency bond funds had their largest weekly outflow since March 2020.

For GRAPHIC on emerging market FX performance in 2021, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2021, see https://tmsnrt.rs/2OusNdX

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For CENTRAL EUROPE market report, see

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For RUSSIAN market report, see

(Reporting by Ambar Warrick; Editing by Subhranshu Sahu)