EMERGING MARKETS-Mexico peso underperforms peers on rate cut bets

Wed Feb 13, 2013 2:06pm EST

* Latam currencies gain as Wall St drives risk appetite
higher
    * Argentine peso closes weaker than 5/dlr for 1st time
    * Brazil real gains 0.4 pct, Mexican peso little changed

    By Walter Brandimarte
    RIO DE JANEIRO, Feb 13 (Reuters) - The Mexican peso
underperformed its Latin American peers on Wednesday as a
growing number of investors considered a possible interest rate
cut by the country's central bank later this year.
    Most foreign exchange markets in the region gained in sync
with Wall Street, where the S&P 500 index hit its highest
level in more than five years. Another exception was the
Argentine peso, which weakened past the level of 5 per U.S.
dollar for the first time in the interbank market.
    The Brazilian real  resumed trading for a
shortened post-Carnival session with gains of 0.4 percent as a
U.S. stocks rally fueled investors' appetite for riskier
emerging market assets.
    "Foreign investors are less averse to risk," said Mauricio
Nakahodo, an economic consultant with Tokyo-Mitsubishi bank in
Sao Paulo, noting that trading was very thin as many market
players remain on vacation for the rest of the week.
    The Brazilian foreign exchange market seems to have found
the boundaries of a new informal trading band after the central
bank intervened on Friday to halt a rally that had pushed the
real to the level of 1.95 per dollar. 
    The Chilean peso and the Colombian peso 
followed the real higher, with gains of 0.2 and 0.1 percent
respectively.
    In Mexico, however, the peso traded flat to weaker as
investors saw reasons piling up for the central bank to make
good on its threat to cut interest rates this year, a move that
would likely reduce the allure of Mexican bonds and currency.
    "For the first time in years, we see a real risk of a rate
cut from Banxico this year," analysts with Brown Brothers
Harriman wrote in a research note. "It could be as early as in
the second quarter, though we favor the third quarter as being
more likely," they added.
    In Argentina, the peso weakened 0.1 percent to 5.0025 per
dollar, closing past the level of 5 per dollar for the first
time in formal interbank trade, where the central
bank intervenes by buying and selling dollars to control the
currency's level and smooth out any sudden price variations.
    In the black market, as measured by Reuters, the
local currency firmed slightly to reach a bid price of 7.63
pesos per dollar, maintaining the spread between the two markets
at about 53 percent.
    The government slapped tough controls on buying foreign
currency in October 2011 and they have been steadily tightened
since then, making it increasingly difficult for Argentines to
secure dollars at the official exchange rate. That means more
and more are forced to pay the hefty premium in the black
market.
    "In truth, the peso's arrival at this level was only a
matter of time - Argentina has operated a managed depreciation
against the U.S. dollar for the best part of the past decade,"
London-based Capital Economics said in a briefing note. 
    "The progressive tightening of capital controls since late
2011 has made the official market off-limits for many local
businesses and consumers. The result has been an increase in
volumes traded on the black market."
   
    Latin American FX prices at 1805 GMT:
    
 Currencies                           Daily  YTD pct
                                        pct   change
                            Latest   change  
 Brazil real                1.9637     0.40     3.89
                                             
 Mexico peso               12.6925     0.03     1.35
                                             
 Chile peso               470.5000     0.23     1.74
                                             
 Colombia peso           1778.0500     0.12    -0.68
                                             
 Peru sol                   2.5690     0.08    -0.70
                                             
 Argentina peso             5.0025    -0.10    -1.80

 Argentina peso             7.6300     0.52   -11.14
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