EMERGING MARKETS-Brazil rates rise sharply on inflation surprise

Fri Dec 7, 2012 5:25pm EST

* Brazil IPCA inflation rise 0.6 pct in Nov, above forecasts
    * Mexican peso gains after stronger-than-expected US
payrolls
    * Brazil real sheds 0.6 pct, Mexico peso up 0.12 pct


    By Danielle Fonseca and Natalia Cacioli
    SAO PAULO, Dec 7 (Reuters) - Yields on Brazil's
interest-rate futures rose sharply on Friday after
higher-than-forecast inflation data reduced the scope for
additional monetary easing next year, while the Mexican peso
gained after encouraging U.S. payrolls data.
    Bets that Brazil would cut its base Selic rate next year to
boost a faltering economy have knocked down domestic interest
rates to all-time lows this week. 
    Yields on interest rate futures had fallen since last
Friday, after data showed the country's economy grew at only
half the pace expected by economists in the third quarter.
    But interest-rate contracts jolted higher on Friday after
Brazil's statistics bureau said November inflation accelerated
to 0.6 percent, above economists' expectations for a 0.5 percent
reading. 
    Interest-rate contracts maturing in January 2014,
one of the most traded, jumped 13 basis points to 7.0 percent.
That contract traded above 7.3 percent last week, before the
disappointing GDP figure, and slid to 6.87 percent on Thursday.
    "What's boosting those contracts is mostly the
higher-than-expected IPCA, which poured cold water on those who
expected interest rates to fall," said Decio Pereira Filho, a
trader with Socopa brokerage in Sao Paulo.
    "The latest comments by Tombini also reinforced the view
that the Selic will remain stable," he added.
    Brazil's central bank president Alexandre Tombini repeated
late on Thursday that the Selic rate should remain at an
all-time low of 7.25 percent for a "prolonged" period.
 
    His comments echoed the content of minutes of the bank's
latest monetary policy meeting, released earlier on Thursday,
but the mere repetition of the "prolonged period" expression led
some traders to interpret that bets on additional rate cuts were
premature.
    
    CURRENCIES STEADY
    Meanwhile, the Brazilian real  shed 0.6 percent
to bid at 2.0904 per dollar, weakening after intervention by the
central bank spurred four sessions of gains.
    Brazil's central bank said on Friday it was conducting a
survey to gauge demand for dollars in the foreign exchange
market, suggesting that policymakers could intervene again early
next week to support the currency and setting the real up to
strengthen next week. 
    A series of measures by the government helped the real rally
nearly 2 percent this week back from its weakest in 3-1/2 years.
    The measures, which included strong central bank
intervention and tax changes to facilitate dollar inflows,
signaled an apparent reversal in a recent government strategy
that favored a weaker currency to boost exports. 
    "The weekend is upon us so folks get more cautious.
Investors' trust is shaken, they're asking themselves, 'what are
the government's intentions?'," said Jaime Ferreira, a manager
at the currency desk at Intercam brokerage in Sao Paulo.
    Other Latin American currencies posted gains after data
showed the U.S. economy created 146,000 new jobs in November,
more than the 93,000 positions expected by economists.
 
    The data supported appetite for risk globally, although the
outlook for the U.S. labor market still seemed tepid as the
country's jobless rate fell because people gave up searching for
work.
    The Mexican peso gained 0.12 percent, ending the week
with an advance of 0.64 percent during the week. 
    Data showed speculators raised their bets in favor of the
peso for the second straight week indicating increasing
confidence in a rebound after a recent slump. 
    
    Latin American FX prices at 1350 GMT:
    
 Currencies                       daily %  year-to
                                   change   date %
                          Latest            change
 Brazil real              2.0747   -0.62.    -10.6
                                           
 Mexico peso             12.8550     0.12      8.7
                                           
 Argentina peso*          6.4500    -0.16    -26.7
                                           
 Chile peso             476.8000     0.02      8.9
                                           
 Colombia peso        1,796.7500     0.15      7.9
                                           
 Peru sol                 2.5720     0.12      4.9
                                           
 * Argentine peso's rate between                  
 brokerages
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