EMERGING MARKETS-Brazil real drops on finmin comments, cenbank intervenes

Wed Jan 30, 2013 3:00pm EST

* US GDP disappointment weighs on Latin American currencies
    * Brazil real drops as Mantega says dollar "will not melt
down"
    * Real trims losses as central bank sells dollars

    By Walter Brandimarte
    RIO DE JANEIRO, Jan 30 (Reuters) - The Brazilian real
weakened on Wednesday, following gains of over 2 percent since
the beginning of the week, after Finance Minister Guido Mantega
warned that the government was ready to correct any excessive
moves in the exchange rate.
    The real trimmed its losses, however, after the central bank
announced it was selling dollars with an agreement to repurchase
them in two months, effectively rolling over a line worth some
$1.2 billion that expires later in the week. 
    The real  closed at 1.9875 per dollar, 0.2
percent weaker than Tuesday's close. 
    An unexpected contraction in the U.S. fourth-quarter GDP
also weighed on Latin American foreign exchange markets in
general, keeping the currencies of Mexico and Chile
 little changed against the dollar.
    Disappointment over the performance of the world's largest
economy tamed investors' appetite for taking risk in emerging
markets. 
    
    MONETARY POLICY INSTRUMENT?
    The Brazilian central bank's decision to roll over its $1.2
billion line was seen by analysts as the latest sign that the
monetary authority is willing to keep the real weaker than 2 per
dollar to help anchor inflation expectations.
    "The central bank is using the currency as an instrument of
monetary policy," said Paulo Petrassi, a partner at Leme
Investimentos in Florianopolis, Brazil.
    "I believe the real will now trade between 1.96 and 2.0 per
dollar -- that is a level that helps curb inflation without
hurting the competitiveness of industry."
    The central bank's action came right after Mantega's
comments weakened the real to nearly 2 per dollar. 
    The real had strengthened past that level on Tuesday as a
central bank decision to roll over some currency swaps was
interpreted as a green light for a stronger exchange rate in the
short term.
    Piercing the 2-per-dollar mark was a symbolic development in
Brazil's foreign exchange market because that had been a limit
to an informal trading band of 2.0-2.1 per dollar in effect
since early July.
    For most of last year, the central bank intervened in the
market to weaken the real in a strategy to benefit exporters and
boost local industry. Just as late as November, Mantega had
promised Brazilian businessmen that a real weaker than 2 per
dollar "was here to stay."
    Despite the recent rally, Mantega still sounded comfortable
with the current exchange rate, telling reporters in Brasilia
that the real has been "spontaneously moving to a more balanced
level." 
    He warned, however, that the government would correct any
"excesses" in the exchange rate and assured that the dollar
would not "melt down" against the real. 
    
    Latin American FX prices at 1950 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                1.9875    -0.18     2.64
                                             
 Mexico peso               12.7300    -0.08     1.05
                                             
 Chile peso               471.1000     0.08     1.61
                                             
 Colombia peso           1776.5100    -0.19    -0.59
                                             
 Peru sol                   2.5670    -0.23    -0.62
                                             
 Argentina peso             4.9775    -0.05    -1.31

 Argentina peso             7.8900    -1.14   -14.07
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