EMERGING MARKETS-Currency rout abates as policymakers offer support

Thu Jan 30, 2014 10:11am EST

By Walter Brandimarte and Natsuko Waki
    RIO DE JANEIRO/LONDON, Jan 30 (Reuters) - A sharp emerging
market sell-off appeared to subside on Thursday as Latin
American currencies opened higher while Russia's rouble and
Turkey's lira rebounded after policymakers pledged to take any
necessary measures to stabilize their markets.
    Investors were on the watch for additional dollar outflows
from developing nations but traders said recent panic selling
had abated for now as markets digested the U.S. Federal
Reserve's widely expected decision to cut bond purchases by
another $10 billion on Wednesday.
    "We do accept the idea that the Fed reducing its asset
purchases begins a change in the overall investment climate, but
it is really a transition phase," analysts with Brown Brothers
Harriman wrote in a research note. 
    Worries about China's economic slowdown still left investors
walking on eggshells as an index of business conditions for
Chinese manufacturers dipped for the first time in six months.
Many emerging countries including Brazil and Chile greatly rely
on commodities exports to China. 
    But, from Istanbul to Moscow and Brasilia, a fresh round of
central bank actions and verbal intervention offered support to
emerging market currencies. 
    The rouble came off a record low against the euro and
its lowest level in nearly five years against the dollar after
the Russian central bank said it would make unlimited
interventions if the exchange rate strays outside of its target
corridor. 
    A Reuters poll of economists found that the Russian currency
is expected to firm by mid-year to 34 per dollar after some
short-term turbulence. It last traded at 34.92 per dollar, 0.4
percent stronger on the day. 
    The lira rose 0.6 percent after the Turkish
central bank said it may further tighten liquidity if necessary
after massively raising all of its interest rates late on
Wednesday. 
    Romania's leu climbed 0.4 percent against the euro 
after the central bank intervened indirectly in the market. Even
in India, whose currency has not sold off as much as
its peers, policymakers pledged to take all necessary steps to
ensure stability in the country's financial markets.
 
    
    RELIEF IN LATAM MARKETS 
    On the other side of the Atlantic, the Brazilian real 
gained 0.4 percent after the central bank announced it would
auction $2.3 billion on the spot market on Friday through
repurchase agreements. 
    The offer, which is intended to roll over similar dollar
lines that expire next month, underscores Brazil's commitment to
supporting liquidity in its foreign exchange market.
    Other Latin American currencies were also in the black, with
the Mexican peso gaining 0.7 percent and the Chilean peso
 0.5 percent stronger.
    Emerging market stocks mostly rebounded, erasing losses in
the benchmark MSCI index for the asset class, which
had earlier fallen to a 4-1/2 month low. The Latin American
portion of the index gained 0.9 percent.
    The recent emerging markets rout gained traction as many
investors fled the asset class, deeming returns too low in
comparison to the rising yields in safe-haven U.S. Treasuries.
    Much of those outflows, however, have been triggered by
retail investors who are usually more averse to short-term
volatility.
    "Institutional investors have remained faithful (but) it may
be that some of these positions are starting to crack," said
Manik Narain, emerging market strategist at UBS.
    
    Key Latin American stock indexes and currencies at 1450 GMT
    
     Stock indexes                  daily %    YTD %
                     Latest         change     change
 MSCI LatAm          2,900.45       0.92       -10.21
                                               
 Brazil Bovespa      47,719.44      0.34       -7.35
                                               
 Mexico IPC          40,810.41      0.3        -4.49
                                               
 Chile IPSA          3,434.56       1.22       -7.15
                                               
 Chile IGPA          17,099.87      0.96       -6.18
                                               
 Argentina MerVal    5,720.33       1.07       6.11
                                               
 Colombia IGBC       11,985.50      0.30       -8.31
                                               
 Peru IGRA           15,361.34      -0.23      -2.49
                                               
 Venezuela IBC       2,794.34       -0.09      2.11
                                               
                                               
 Currencies                         daily %    YTD %
                            Latest  change     change
 Brazil real         2.4220         0.43       -2.69
                                               
 Mexico peso         13.3140        0.68       -2.13
                                               
 Chile peso          546.4000       0.48       -3.72
                                               
 Colombia peso       2009.5900      -0.13      -3.86
                                               
 Peru sol            2.8170         0.18       -0.85
                                               
 Argentina peso      8.0100         -0.06      -18.95

 Argentina peso      12.8000        1.17       -21.88
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