EMERGING MARKETS-Brazil interest rate futures firm on retail data

Tue Oct 15, 2013 1:51pm EDT

RIO DE JANEIRO, Oct 15 (Reuters) - Brazil's interest rate
futures rose on Tuesday after stronger-than-expected retail
sales data suggested the central bank will keep raising interest
rates to discourage inflation. 
     Brazilian interest rate futures are widely watched as they
gauge market expectations about future monetary policy decisions
by the central bank. Higher rates have the potential of making
fixed-income investments denominated in the Brazilian currency
more attractive for foreigners.
     On Tuesday, however, the Brazilian real and other key Latin
American currencies were little changed as investors traded
cautiously before a deal was reached to avoid a debt default in
the United States.
     Mexico's peso was the most notable exception,
gaining 0.4 percent to 12.952 per dollar and crossing again the
psychological relevant level of 13 per dollar.
     U.S. senators expressed hope that a bipartisan deal could
emerge on Tuesday to end Washington's fiscal crisis even as
Republicans in the House of Representatives said they were
working on a separate plan. 
    The U.S. Treasury is expected to exhaust its borrowing
authority on Thursday, raising the prospect of a debt default a
few weeks later.
    * The Brazilian real  was virtually unchanged at
2.1770 per dollar, around its strongest level in nearly four
months.
    * Investors were unwilling to push the real substantially
higher due to a widely-held perception that the government does
not want an exchange rate much stronger than 2.2 per dollar. 
    * Underpinning that perception about the real was talk that
the central bank could not roll over all of the $8.9 billion
worth of currency swap contracts, derivatives designed to
support the real, that will expire on Nov 1. The central bank
has declined to comment.
    * Brazil's interest-rate contracts mostly rose
after the government said retail sales jumped 0.9 percent in
August from July, better than the most optimistic forecast in a
Reuters poll of 29 economists. 
    * The data showed "the strength of (Brazil's) domestic
market," said Fernando Mendes, a fixed-income manager at Lerosa
Investimentos in Sao Paulo. "The data increases the possibility
of a half percentage point increase in the base interest rate,
although it needs to be seen in a wider context."
    * Brazil's interest-rate contract maturing in Jan 2015
, which had already jumped 30 basis points in the
previous five sessions, rose to as much as 10.43 percent after
the retail sales data, a rise of 5 basis points over Monday's
close. It later trimmed gains, however, to trade flat at 10.38
percent.
    * Still, Brazilian rate futures' yield curve shows a large
probability that the country's central bank benchmark Selic rate
will be raised to 10 percent in November, from its current level
of 9.5 percent. 
    * In Mexico, the peso has posted gains during three of the
past four sessions on expectations of a resolution to the U.S.
fiscal impasse. Those gains have taken the currency near its
100-day moving average of 12.927 per dollar, which is considered
an important resistance level.

    
    Latin America FX prices at 1628 GMT: 

 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.1757     0.04    -6.24
                                             
 Mexico peso               12.9520     0.37    -0.68
                                             
 Chile peso               498.7000     0.08    -4.01
                                             
 Colombia peso           1883.5000    -0.09    -6.24
                                             
 Peru sol                   2.7690     0.00    -7.87
                                             
 Argentina peso             5.8375    -0.09   -15.85

 Argentina peso             9.6200     1.04   -29.52
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