EMERGING MARKETS-Brazil yield curve steeper as cenbank holds rates
* Mexican peso firms to ten month high, up 0.2 pct * Brazil keeps Selic at all-time low, warns of inflation * Brazilian real up 0.21 pct By Walter Brandimarte RIO DE JANEIRO, Jan 17 (Reuters) - Mexico's peso firmed to a 10-month high on Thursday, helped by improved U.S. data, while Brazil's yield curve steepened after the central bank acknowledged growing risks of inflation. I mproved jobs and housing data in the United States, Mexico's top trading partner, helped drive the peso's strength as it tr acked a rise in the S&P 500 to a five-year intraday high. [ I D:nL1E9CHHCX] Solid U.S. demand for local exports has helped shield Mexico from sluggish global growth. The peso has gained more than 3 percent since late December. "The currency has gotten some good momentum, helped by the appeal of Mexico's situation," said Joel Virgen and analyst at Citigroup's Mexican unit Banamex. The peso firmed 0.2 percent to 12.5950 per dollar, its strongest close since March last year, but it pulled back from an even stronger intraday level. The cost of dollars in pesos is close to testing a key support level. A break below 12.55 to a 16-month high could herald further gains for the peso or investors could soon be quick to take profits, sending the dollar higher. Concerns that U.S. lawmakers ma y fail to extend the government's borrowing authority in the coming weeks could weigh on the peso. "Our reasoning continues to be that this first quarter we will see a dose of fiscal uncertainty in the United States," said Virgin. A S&P official said on Thursday progress on a raft of refor m s pr oposed by Mexico's new president Enrique Pena Nieto c o uld lead to more favorable sovereign debt ratings. [I D:nL1E9CH7ZH] Brazil's yield curve steepened on Thursday after the central bank decided to hold the base Selic rate at an all-time low of 7.25 percent even as it acknowledged growing risks of inflation. Short-term interest rates fell or remained flat, with the contract maturing in Jan. 2014 unchanged at 7.16 percent, after the bank late on Wednesday repeated its position that keeping the Selic stable for a prolonged period remains the "best strategy" to curtail inflation. But longer-term rates climbed higher, with the contract for Jan. 2015 up 4 basis points at 7.8 percent, on the perception that inflation will be a problem the central bank will have to address down the road. "If the central bank wanted to anchor inflation expectations, it did not succeed in that statement," said Andre Perfeito, an economist with Gradual Investimentos in Sao Paulo. Brazil's consumer inflation closed 2012 at 5.84 percent, well above a government target of 4.5 percent, but still within its tolerance margin of 2 percentage points. Prices continued to gain traction in 2013, complicating President Dilma Rousseff's bid to spur growth by keeping rates at all-time lows. The central bank said in its statement after Wednesday's monetary policy meeting that risks to inflation increased in the short term. It said a recovery in domestic activity has been weaker than expected. The Brazilian real gained 0. 2 1 percent to close at 2 .0391 per dollar, within a narrow range of 2.0-2.05 per dollar it has been trading since the beginning of the year. Latin American FX prices at 23:55 GMT: Currencies daily % YTD % change change Latest Brazil real 2.03 91 0. 21 0. 00 Mexico peso 12.5950 0.0 2 2. 17 Chile peso 472.1000 0.57 1.40 Colombia peso 1765.3500 0.51 0.04 Peru sol 2.5480 -0.04 0.12 Argentina peso 4.9475 0.05 -0.71 Argentina peso 7.4900 0.13 -9.48
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