EMERGING MARKETS-Latam currencies firm, conviction seen weak

Thu Mar 24, 2011 5:28pm EDT

* Mexico peso firms 0.59 pct, Chile peso up 0.33 pct

* Investors seem to rule out deepening EU debt crisis

* Brazil real up 0.18 pct as intervention eyed

By Michael O'Boyle

MEXICO CITY, March 24 (Reuters) - Key Latin American currencies firmed on Thursday, supported by a weaker dollar and rising stock markets, but analysts noted a lack of conviction behind the gains amid a host of global risks.

Brazil's real hit a two-week high, while Mexico and Chile's pesos traded at their strongest in more than a week.

Demand for riskier assets like stocks and emerging market currencies rose despite worries about the ongoing violence in the oil-producing Middle East, fears that Portugal will need a bailout and concerns about Japan's nuclear crisis.

The cascade of the negative global events had slammed Latin American assets this month.

"The market took a breath over the last couple of weeks, the global backdrop deteriorated, but it hasn't changed significantly, so investors are willing to put some money to work," said David Beker, head Latin American

"But I wouldn't say these investors have a strong hand, people are willing to put on short-term positions, but not medium- or long-term positions," he added.

Japan's disasters could end up weighing down global growth, as could a sustained spike in oil prices or the expansion of Europe's debt crisis to a major economy like Spain.

Global investors have been taking advantage of recent declines in Latin American currencies on global jitters to place fresh bets on the region's high-yielding debt.

Latin American currencies could see support from high prices for local commodities, like Chile's copper and Brazil's iron and soy, while expectations of further interest rate hikes will tempt global investors with higher yields.

"Latin America has high commodity prices and these guys are more willing to hike interest rates," said Win Thin, an emerging markets strategist at Brown Brothers Harriman in New York.

Mexico and Colombia are oil exporters while Brazil is energy self-sufficient, so they may be able to better weather higher oil prices than Asia, where most countries import, Thin said.

While intervention in Brazil could limit gains, Mexico and Chile may be poised to advance further.

Mexico's peso MXN=MEX01 firmed 0.59 percent to 11.9480, edging past the psychological 11.95 level, which could open the field for a run toward its nearly 2-1/2 year high hit earlier this month at 11.8585.

Local banks exercised $200 million in dollar put options on Thursday, exhausting the last of the $600 million a month sold by the central bank.

Outstanding options can help contain the peso's gains, but with the monthly allotment used up, the currency will find less resistance to advance in the coming sessions.

Chile's peso CLP=CL bid 0.33 percent stronger to 479.70 per dollar.

Chile imports most of its crude, but strong copper prices can help offset the impact of higher oil costs, analysts said. Chile is the world's top copper producer.

Brazil's real BRBY firmed 0.18 percent to 1.656 per dollar, gaining ground for the fifth straight session and trading at its strongest since March 9.

The real is than 1 percent from a 2-1/2 year high hit earlier this month that stirred concerns of fresh moves by authorities to tame the real's strength, which is hurting local manufacturers.

Traders said the market was cautiously pushing the real stronger amid expectations that new measures could be announced. (Additional reporting by Jose de Castro in Sao Paulo, Editing by Diane Craft)

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