EMERGING MARKETS-Brazilian real gains for 3rd day on govt action

Wed Dec 5, 2012 1:45pm EST

* Brazil narrows reach of IOF tax on foreign loans
    * Chile economy grows at fastest annual pace of 2012
    * Brazil real gains 0.8 percent, Mexico peso 0.2 percent
stronger

    By Walter Brandimarte
    RIO DE JANEIRO, Dec 5 (Reuters) - Brazil's real gained for a
third consecutive session on Wednesday after the government
unveiled yet another measure that facilitates dollar inflows to
the country, while the Chilean peso rose on data showing
domestic economic activity sped up in October.
    The real  rose 0.8 percent to 2.0982 per U.S.
dollar as the government announced it was reducing the reach of
a financial transaction tax known as IOF on foreign borrowing by
domestic companies. 
    That was the latest in a series of measures announced by the
Brazilian government this week to boost the domestic supply of
dollars, which are usually more scarce at the end of the year.
On Tuesday, the central bank narrowed the scope of the IOF to
export prepayments, and on Monday it sold dollars directly to
investors.
    "The government is really loosening the tie in the past
couple of days," said Reginaldo Galhardo, a manager at the
currency desk of Treviso brokerage in Sao Paulo. "It is backing
off because it sees dollars are in short supply."
    While traders discussed whether the government was defending
a new floor for the real around 2.1 per dollar, most economists
agree policymakers mostly aim to smooth out end-year currency
fluctuations.
    "The government is showing concerns about the levels of hard
currency liquidity in the FX markets, which either due to
seasonal factors or negative sentiment towards the country have
been pressuring the real to weaker levels at a fast pace,"
Barclays' analysts Guilherme Loureiro and Marcelo Salomon wrote
in a research note.
    "In our view, policymakers will continue to intervene in the
market in order to prevent fast bouts of depreciation of the
real, but given the weak growth background, we believe there is
little, if any, intent to pull the currency below 2.10," they
added.
    In a sign that investors are betting on a weaker real in the
short term, banks adopted a net long dollar position worth $998
million at the end of November, according to central bank data.
    Expectations that Brazilian policymakers would favor a
weaker currency to boost exports grew after data showed the
country's economy grew at half the rate economists expected in
the third quarter.
    
    CHILEAN ECONOMY SOARS
    In Chile, on the other hand, faster-than-expected economic
activity helped drive the peso 0.31 percent higher to
479.20 per dollar. The peso had already gained 8.4 percent so
far this year, leading gains among Latin American currencies.
    Growth in Chile's economic activity accelerated to 6.7
percent in October from the same month a year ago, above
analysts' expectations for a 6.4 percent pace and making the
world's top copper producer more attractive to foreign
investors. 
    Also supporting the Chilean peso were dollar inflows from
mining companies, traders said.
    Other Latin American currencies also gained on Wednesday,
with the Mexican peso rising 0.2 percent, as appetite for
emerging market assets was supported by expectations of strong
Chinese economic growth.

    Latin American FX prices at 1835 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.0982     0.82   -10.95
                                             
 Mexico peso               12.9200     0.23     8.12
                                             
 Argentina peso*            6.4200     0.31   -26.32
                                             
 Chile peso               479.2000     0.31     8.37
                                             
 Colombia peso          1,811.8000     0.06     6.99
                                             
 Peru sol                   2.5790     0.04     4.58
                                             
 * Argentine peso's rate between                    
 brokerages
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