EMERGING MARKETS-Colombia peso down on gov't measure, Brazil real up

Thu Feb 14, 2013 3:14pm EST

* Colombia cuts 2013 bond sales by $1 bln to buy dollars
    * Investors test Brazil cenbank tolerance to strong real
    * Brazil real gains 0.3 pct, Mexican peso steady

    By Walter Brandimarte
    RIO DE JANEIRO, Feb 14 (Reuters) - The Colombian peso led
losses among its Latin American peers on Thursday after the
government announced plans to buy around $1 billion in foreign
exchange markets this year, but the Brazilian real rose as
investors tested the central bank's tolerance for a stronger
currency.
    Other Latin American currencies were little changed, with
the Mexican peso flat at 12.6830 per dollar, as
investors' appetite for risk remained steady following a flurry
of merger deals that offset signs of economic weakness in Europe
and Japan.
    The Colombian peso weakened 0.3 percent to
1,782.91 per dollar, one day after Finance Minister Mauricio
Cardenas said the government will reduce global bond issuance
this year by $1 billion and buy the same amount on the foreign
exchange market to pay debt amortizations and interest.
    The move is part of a strategy to reduce the supply of
dollars in the Colombian market and curb gains in its domestic
currency, which rose nearly 9 percent in 2012. 
    "This implies real dollar demand from the central government
and should help offset dollar inflows from the private sector
and other public sector institutions," Felipe Hernandez, a Latin
America strategist with RBS, wrote in a research note.
    He added, however, that the market impact of that measure
should be limited "as it was at least partially priced already."
    In the opposite direction, the Brazilian real  
erased early losses to gain 0.3 percent to 1.9575 per dollar.
Investors, anticipating stronger dollar inflows in the next
several weeks, decided to test what many believe to be the lower
limit of a new informal trading band of 1.95 to around 2 reais
per dollar.
    The boundaries of that trading range appeared to have been
set by a series of recent central bank interventions, including
a Friday sale of reverse currency swaps - derivative contracts
designed to weaken the currency that were offered when the real
neared the mark of 1.95 per dollar. 
    "We might have larger dollar inflows and the market may be
betting we will have an exchange rate slightly stronger than
1.95," said Ures Folchini, a treasury vice president at WestLB
bank in Sao Paulo.
    Trading volumes were low, however, because many local
investors remained on vacation after the Carnival holidays and
others remained cautious about the government's foreign exchange
policy, Folchini added.
    
    Latin American FX prices at 1955 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                1.9571     0.34     4.24
                                             
 Mexico peso               12.6848     0.01     1.41
                                             
 Chile peso               470.7000    -0.04     1.70
                                             
 Colombia peso           1782.9100    -0.27    -0.95
                                             
 Peru sol                   2.5670     0.08    -0.62
                                             
 Argentina peso             5.0025     0.05    -1.80

 Argentina peso             7.6400     0.13   -11.26
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A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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