EMERGING MARKETS-Brazil short-dated rates rise on inflation view

Wed Feb 6, 2013 1:25pm EST

* Brazil consumer inflation seen hitting fastest pace in 12
months
    * Latam currencies weighed down by weak Wall St session
    * Brazil real gains 0.5 pct, Mexican peso 0.6 pct higher

    By Natalia Cacioli
    SAO PAULO, Feb 6 (Reuters) - Brazil's short-dated
interest-rate contracts rose on Wednesday to their highest level
in at least two months on speculation that rising inflation
could force the central bank to tighten monetary policy, while
most Latin American currencies lost as a Wall Street rally
paused.
    Economists estimate that Brazil's benchmark IPCA consumer
inflation index, which will be released early on Thursday,
accelerated in January to its fastest pace in 12 months despite
a faltering economic recovery, a Reuters poll showed.
 
    "The market continues to see high inflation, and that would
result in higher interest rates, specially if the economy
recovers," said Ures Folchini, a treasury vice president at
WestLB bank in Sao Paulo.
    Interest-rate contracts maturing in January 2014,
one of the most traded, jumped 5 basis points to 7.33 percent --
the highest level since the end of November. The contract
expiring in January 2015 also climbed 5 basis points to
8.07 percent, on track to close at its highest point since early
October.
    Despite a rally in Brazil's domestic rates, most analysts
still expect the central bank to resort to non-conventional
measures to curb inflation, leaving the base Selic rate at its
current all-time low of 7.25 percent during 2013.
    Most Latin American currencies fell as a Wall Street rally
ran out of steam, curbing investors' appetite for taking risk in
emerging markets.
    Leading losses in the region was the currency of Mexico,
whose economy heavily relies on the performance of its northern
neighbor. The Mexican peso lost half a percentage point
to 12.70 per dollar.
    Concerns about high asset prices and a weak global economy
are likely to limit gains in Mexico's peso this year, although a
chance of a ratings upgrade could boost the currency, a Reuters
poll found. 
    The Brazilian real  lost a more modest 0.1
percent, however, as investors feared any sharp moves could
trigger a government intervention in the foreign exchange
market.
    "This week the exchange rate is stuck between 1.98 and 1.99
per dollar and it is likely to remain like that," said Celso
Siqueira, manager of the currency desk at Advanced brokerage in
Sao Paulo.
    Economists expect the real to hover around the 2 per dollar
mark for the whole of 2013 as the government tries to support
exporters without creating additional inflation pressures, a
Reuters poll showed. 

    Latin American FX prices at 1815 GMT:
    
 Currencies                           Daily  YTD pct
                                        pct   change
                            Latest   change  
 Brazil real                1.9871    -0.13     2.66
                                             
 Mexico peso               12.7000    -0.55     1.29
                                             
 Chile peso               472.5000     0.06     1.31
                                             
 Colombia peso           1791.4500    -0.25    -1.42
                                             
 Peru sol                   2.5770     0.00    -1.01
                                             
 Argentina peso             4.9850     0.00    -1.45

 Argentina peso             7.6800    -1.17   -11.72
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