EMERGING MARKETS-Latam FX little changed on global uncertainty

Thu Feb 28, 2013 5:12pm EST

* Brazil real consolidates within 1.95-2.0 per dollar range
    * Mexico peso outlook hinges on next week's rate decision
    * Brazil real drops 0.2 pct, Mexico peso dips 0.1 pct

    By Walter Brandimarte
    RIO DE JANEIRO, Feb 28 (Reuters) - Latin American currencies
hovered around the unchanged mark on Thursday as hopes of
continued stimulus from the U.S. Federal Reserve offset concerns
about Italy's political stalemate and the U.S. economy.
    The Brazilian real  traded around Wednesday's
close during most of the session but posted some losses towards
the end of the day to close 0.2 percent weaker at 1.9774 per
dollar. 
    It finished February with gains of 0.6 percent, though, as
investors bet Brazilian policymakers want the currency to remain
within a range of 1.95-2.0 per dollar, slightly stronger than it
was in the final months of 2012, to help cheapen the cost of
imported goods and fight inflation.
    Even as Brazil recorded dollar outflows of $2.8 billion in
the month to Feb. 22, analysts say banks continue to hold large
positions in the derivatives market betting on a stronger
currency. 
    "We estimate the local banks are short dollars onshore by
$11.4 billion. This is close to the record $12.7 billion short
reported back in Feb 2011," Flavia Cattan-Naslausky, Latin
America currency strategist with RBS, wrote in a research note.
    "As long as there is a perception that inflation risks
maintain a top in the dollar-real exchange rate, local banks
should not hurry too much to cover this position."
    
    CAUTION
    Currency investors traded cautiously as they feared the
economic consequences of Italy's political instability and
before a series of automatic spending cuts come into effect in
the United States, potentially hurting the global economy.
    Hopes that the U.S. Fed will hold on to its bond-buying
program, providing a steady source of dollars that often find
their way into higher-yielding emerging economies, cushioned the
losses. 
    In Mexico, uncertainty over whether the central bank will
cut interest rates next week kept currency investors on edge.
    The Mexican peso barely moved during the session and
last traded at 12.7825 per dollar, 0.1 percent weaker than
Wednesday's close.
    In the previous session, the peso recovered part of the
losses incurred this week after a central bank policymaker said
he saw "no case" for an interest rate cut, a move that could
reduce the appeal of Mexican assets. 
    Bets on a possible interest rate cut in Mexico increased
recently as the central bank warned it could loosen its monetary
policy if inflation and growth continue to slow down.
        
    Latin American FX prices at 2150 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                1.9774    -0.20     3.00
                                             
 Mexico peso               12.7825    -0.12     0.64
                                             
 Chile peso               472.7000     0.02     1.27
                                             
 Colombia peso           1812.9000     0.07    -2.59
                                             
 Peru sol                   2.5890    -0.31    -1.47
                                             
 Argentina peso             5.0450    -0.05    -2.63

 Argentina peso             7.8200     0.00   -13.30
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