EMERGING MARKETS-Latam currencies down on rise in China inflation

Fri Jan 11, 2013 10:07am EST

* China inflation hits 7-month high, reducing room for
stimulus
    * Despite losses, Brazil real could test level of 2/dlr soon
    * Brazil real falls 0.3; Mexican peso drops 0.2 percent

    By Walter Brandimarte
    RIO DE JANEIRO, Jan 11 (Reuters) - Latin American currencies
weakened on Friday as investors worried that China, the main
consumer of the region's commodity exports, would have limited
room to stimulate its economy due to rising inflation.
    Losses were limited as many analysts remain bullish on Latin
American currencies, either due to expectations of a solid
economic performance, as it is the case in Mexico, or due to
inflation concerns such as those seen in Brazil.
    After a good rally so far in the year, however, some
investors seemed ready to pocket part of those gains. The profit
taking was triggered by data showing that China's December
inflation accelerated to a seven-month high. 
    The Mexican peso dropped 0.2 percent to 12.6320 per
dollar, still holding gains of about 1.8 percent so far in the
year. It had closed on Thursday near a 10-month high after data
showed the country's economy accelerated in October.
    The Brazilian real  lost 0.3 percent to 2.0345
per dollar, still up 0.3 percent since Jan. 1. As inflation in
Brazil remains above the center of a government target range,
investors bet the central bank will keep the real stronger than
2.05 per dollar in order to avoid pass-through to prices.
    Some even believe policymakers may allow the real to gain
slightly past the mark of 2 per dollar -- the lower limit of a
de facto trading range where the real has been confined since
July.
    "The balance of risks has shifted towards inflation," JP
Morgan's analysts said in a research note. "A persistent and
broad-based weakness of the U.S. dollar could provide a cue for
an eventual test of the 2 reais-per-dollar level." 
    
    Latin American FX prices at 1455 GMT:
    
 Currencies                       daily %    YTD %
                                   change   change
                          Latest           
 Brazil real              2.0345    -0.28     0.27
                                           
 Mexico peso             12.6320    -0.21     1.84
                                           
 Argentina peso*          7.2100     0.55    -5.96
                                           
 Chile peso             471.6000    -0.17     1.51
                                           
 Colombia peso        1,762.0000     0.06     0.23
                                           
 Peru sol                 2.5500     0.00     0.04
                                           
 * Argentine peso's rate between                  
 brokerages
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