EMERGING MARKETS-Latam currencies slide on weaker China growth

Wed May 11, 2011 5:10pm EDT

Related Topics

* China slows, trimming outlook for commodity demand

* Greece, Portugal debt woes add to dollar strength

* Dollar flows may limit real's declines ahead.

* Colombia peso, Brazil real lead declines.

By Jeb Blount

RIO DE JANEIRO, May 11 (Reuters) - Latin American currencies weakened against the U.S. dollar on Wednesday on concerns that China's economy is cooling, a development that could limit demand for Latin American commodities exports.

Colombia's peso COP= weakened 1.41 percent to 1,811.10. Brazil's real BRBY weakened 0.93 percent to bid at 1.618 to the U.S. dollar. Mexico's peso MXN= shed 0.89 percent to 11.6530 per dollar, its worst one-day loss since mid-March.

The declines came after China's government said industrial output rose 13.4 percent in April compared with a year earlier, more than a percentage point below expectations. Inflation in China eased to 5.3 percent in April from a 32-month high in March.

"There is a perception worldwide that Chinese growth is easing, and with that we are seeing a clear impact not only on the prices of major Latin American commodities but on the region's currencies as well," said Flavio Serrano, senior economist with Portugal's Espirito Santo Investment Bank in Sao Paulo.

Copper fell 3 percent to $8,700 a tonne. Soybeans fell 0.58 percent to $13.295 a bushel. Coffee slid 3.34 percent to $273.95 a lb. Iron-ore, the main steel ingredient, has slipped 2.1 percent since May 4.

Chile, the world's largest copper producer, gets more than a third of its export earnings from the metal. Brazil and Colombia are leading coffee producers. Brazil is the second-largest exporter of soybeans and iron-ore.

The Chilean peso CLP= fell 0.75 percent to 468, while the Mexican currency MXN=MXN=D2 was 0.79 percent weaker at 11.6455.

GREECE, PORTUGAL CONCERN

In Mexico, traders said the risk of a debt default in Greece and Portugal may reduce appetite for investments in emerging markets, preventing the Mexican peso from strengthening beyond a 2-1/2 year high of 11.4815 seen early last week.

"Getting to 11.40 or 11.30 could be more difficult ... due to the situation in Greece and the euro zone," said Antonio Magana, head of currency trading at brokerage Interacciones in Mexico City.

Brazil's real may be in for a period of back-and-forth trading, said Joao Ferreira, managing partner at Futura Corretora, a Sao Paulo currency brokerage.

Returns from a growing consumer market in Brazil, the world's eighth-largest economy, continue to be promising even in the face of today's commodities downturn, he said.

"Brazil is clearly following the world down today, but I don't see much chance of the real slipping beyond 1.65 to the dollar," he said. "Much of what you see today is covering of short positions in the dollar not a bet on the long-term health of the Brazilian economy."

A shortage of dollars in the market caused by a 6 percent tax on all loans of up to two years, has eased, Ferreira said.

The rate on Brazil's coupon cambial, a proxy for dollar-indexed interest rates in the country, has fallen to 4.75 percent after reaching a high of 7.5 percent on April 27. (Additional reporting by Michael O'Boyle; Editing by Kenneth Barry)

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