EMERGING MARKETS-Brazil real, rates slide after disappointing GDP
* Brazil's 3rd-quarter GDP grows 0.6 pct, half what was expected * Mexico keeps rates on hold, backs off from hike threat * Brazil real drops 0.6 pct, Mexico peso stable By Walter Brandimarte RIO DE JANEIRO, Nov 30 (Reuters) - Brazil's currency and interest rate futures slid on Friday after data showed the country's economy grew only half what economists expected in the third quarter, suggesting the government may resort to a weaker currency and low interest rates to prop up economic activity. Elsewhere in Latin America, investors traded cautiously ahead of a statement from President Barack Obama on U.S. budget negotiations. Month-end purchases kept the Mexican peso stable even after the country's central bank backed away from a threat to raise interest rates. Higher rates could further increase the appeal of the currency. The Brazilian real fell 0.6 percent to 2.1085 per dollar after the government statistics agency IBGE said gross domestic product expanded 0.6 percent in the third quarter from the second quarter. Economists expected the economy to grow 1.2 percent in that comparison. Second-quarter growth was also revised down to only 0.2 percent, half what had been previously reported. Also contributing to the real's weakness were dollar outflows that normally take place at the end of the month, when companies send profits abroad. "Today is the end of the month, so we're seeing some outflows," said Ures Folchini, a treasury vice president at WestLB bank in Sao Paulo. Folchini bets the real will gradually weaken as the government continues to favor a weaker currency to boost the economy, but warns of inflation risks. "We need to be very careful. We can't have the real weakening too much to help the economy while, on the other hand, inflation erodes those gains." LOWER SELIC? With the government running out of alternatives to stimulate the economy, some investors debated whether the central bank may resume its monetary easing cycle, interrupted just this month. That expectation knocked down domestic interest-rate futures. The contract maturing in January 2014, one of the most traded, plunged 11 basis points to 7,2 percent. "The interest-rate market is melting because of the GDP," said Luis Otavio de Souza Leal, chief economist with Banco ABC Brasil in Sao Paulo. "The market is even discussing the possibility of a Selic cut in January." Brazil's central bank kept the country's base interest rate at an all-time low of 7.25 percent on Wednesday, signaling the rate will remain at that level for a "prolonged period." The GDP data at least makes the case for a stable Selic for a long time, despite concerns about inflation, economists said. Latin American FX prices at 1553 GMT Currencies daily % YTD % change change Latest Brazil real 2.1085 -0.58 -11.38 Mexico peso 12.9385 0.07 7.97 Argentina peso* 6.4200 0.31 -26.32 Chile peso 480.8000 -0.37 8.01 Colombia peso 1,814.2300 0.05 6.84 Peru sol 2.5770 -0.04 4.66 * Argentine peso's rate between brokerages
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