EMERGING MARKETS-Brazil rates fall on weak economic activity; Latam FX down

Fri Jul 12, 2013 10:22am EDT

RIO DE JANEIRO, July 12 (Reuters) - Brazil's interest-rate
futures fell on Friday after an economic activity indicator came
in well below economists' forecasts, while Latin American
currencies dropped on lingering fears about an expected
withdrawal of U.S. stimulus.
    A larger-than-expected jump in U.S. consumer prices
suggested inflationary pressures were building in the world's 
largest economy, possibly making policymakers more comfortable
to soon cut back on the stimulus measures that for years have
supported appetite for emerging-market assets. 
    Also contributing to the negative tone in Latin America were
concerns about China, the region's main commercial partner,
after Chinese finance minister Lou Jiwei signaled that Beijing
may be willing to tolerate economic growth significantly below 7
percent in the second half of the year. 
    * Brazil's interest-rate futures fell across the
board after the central bank's IBC-Br economic activity index
 dropped 1.4 percent in May from April, suggesting
policymakers may need to curtail the current monetary tightening
cycle due to a weak economy. Analysts expected the index to drop
0.9 percent in that comparison. 
    * After the release of the IBC-Br data, interest-rate
contracts maturing in Jan 2015, one of the most traded,
dropped 5 basis points to 9.54 percent, while those maturing in
Jan 2017 slid 12 basis points to 10.74 percent.
    * The IBC-Br index follows a series of downward revisions in
estimates for Brazil's economic growth this year. Some of them,
such as Nomura Securities and BNP Paribas, already expect Brazil
to grow less than 2 percent in 2013. "Economic activity is
weakening and that can make this monetary tightening cycle end
before markets expect," said Daniel Cunha, an analyst with XP
Investimentos in Sao Paulo.
    * Brazil's real  dropped 0.4 percent, leading
losses among Latin American currencies, as weak economic
prospects for the country further weighed on investors' appetite
for local currency-denominated assets.
    * Mexico's peso <MXN=D2 dropped 0.1 percent to
12.8195 per dollar, but remained near a four-week closing high
of 12.8125 reached in the previous session. 

    Latin American FX prices at 1405 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.2655    -0.34    -9.95
                                             
 Mexico peso               12.8225    -0.14     0.33
                                             
 Chile peso               505.2000     0.04    -5.25
                                             
 Colombia peso           1906.1000     0.23    -7.35
                                             
 Peru sol                   2.7680     0.07    -7.84
                                             
 Argentina peso             5.4200     0.00    -9.36

 Argentina peso             8.1600    -0.86   -16.91
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