EMERGING MARKETS-Brazil real gains for 5th session, Turkey lira drops

Tue Feb 25, 2014 1:15pm EST

By Walter Brandimarte and Natsuko Waki
    RIO DE JANEIRO/LONDON, Feb 25 (Reuters) - Brazil's real on
Tuesday gained for a fifth session in a row as investors turned
less pessimistic on the country's fiscal prospects, but Turkey's
lira hit a two-week low versus the dollar after the latest twist
in a government corruption scandal.
    Concerns about the Chinese economy, underscored by recent
losses in the yuan's value, weighed on emerging market stocks in
general and, in particular, on shares of companies such as
Brazil's miner Vale, a large exporter of iron ore to
China.
    The Brazilian real strengthened 0.6 percent against
the dollar to 2.3312 per dollar. It has gained more than 2.5
percent over the past five sessions since the government set a
more modest fiscal savings target for 2014 that many investors
considered realistic.
    Brazil needs to convince investors that it is committed to a
credible fiscal target to halt the deterioration of public
finances despite spending pressures stemming from this year's
re-election campaign, in which President Dilma Rousseff will
seek a second term.
    "There has been a marked improvement in sentiment toward
Brazil in the past few days. That has pushed the dollar lower
against the real," said Marcos Trabbold, a currency trader with
B&T brokerage in Sao Paulo.
    The lira, on the other hand, fell 0.4 percent to 2.2087 per
dollar after voice recordings were posted on YouTube late
on Monday purportedly of Turkish Prime Minister Tayyip Erdogan
telling his son to dispose of large sums of money on the day
news broke of a graft inquiry into his government. 
    The incident comes at a sensitive time for Erdogan, whose AK
Party officially began campaigning for March local elections 
Erdogan's office said the recordings were fake. 
    As in many emerging markets, there is the concern over the
impact of a tapering in the Federal Reserve's bond-buying
program. For years the stimulus had supported investment in
higher-yielding emerging markets. But the Fed cut back the bond
buying by $10 billion in December and $10 billion again in
January.
    "In Turkey you have the tapering worries but you also have a
layer of political risk on top. In a sense what's happening
today is a continuation of themes that have been running for a
while," said HSBC emerging equity strategy head John Lomax.
    Turkey's stocks fell more than 3 percent while
benchmark two-year government bond fell 0.4 point in
price, pushing yields to 10.99 percent.
    In Ukraine, the hryvnia fell more than 3 percent to 9.4460
per dollar, as focus turned to whether the country will
get aid from donors including the International Monetary Fund. A
floating hryvnia was a key pre-condition the IMF sought to renew
its loan package to Ukraine last year.
    Forward currency markets are pricing in the hryvnia trading
at 10.47 in six months, a depreciation of nearly
10 percent from current levels.
    In Russia, nervousness over Ukraine weighed on the rouble
 and stocks .
    "There's a correction of the strongly overbought Chinese
Yuan, plus uncertainty in the situation with Ukraine - these
factors negatively influence the rouble," said Denis Korshilov,
head of markets at Citibank Russia.
    
    CHINA CONCERNS
    China's yuan fell beyond the official midpoint rate for the
first time since September 2012 as Beijing plans to usher in
more reforms including lending curbs and a widening of the
currency band to 2 percent or more from 1 percent. It last
traded at 6.1243, much softer than the midpoint
 which was set at 6.1184.
    China's reforms may be announced at next week's National
People's Congress meeting.
    "China is preparing to widen the daily trading band and they
are trying to prepare the market by increasing two way
volatility in the exchange rate," said Flemming Nielsen, analyst
at Danske Bank in Copenhagen.
    "As we have seen, the two major drivers for emerging markets
have been Fed tapering and slower growth in China. It is
difficult to call the bottom for emerging markets as long as we
can't call a bottom in China."
    The broader benchmark MSCI emerging index fell 0.2
percent, weighed down by China's CSI300 share index 
which fell 2.6 percent. 
    The Latin American portion of the MSCI index 
dropped 1.2 percent as shares of miner Vale slid 2.7
percent, also pressured by concerns about the company's
fourth-quarter earnings, which are due to be released on
Wednesday.
    
    Key Latin American stock indexes and currencies at 1645 GMT 
     Stock indexes                    daily %     YTD %
                           Latest     change      change
 MSCI Emerging Markets   956.23       -0.23       -4.42
                                                  
 MSCI LatAm              2933.53      -1.24       -7.2
                                                  
 Brazil Bovespa          46670.57     -1.53       -9.39
                                                  
 Mexico IPC              39256        -1.35       -8.12
                                                  
 Chile IPSA              3638.23      -0.06       -1.65
                                                  
 Chile IGPA              17975.66     -0.12       -1.38
                                                  
 Argentina MerVal        5900.44      -1.37       9.45
                                                  
 Colombia IGBC           12330.96     -1.37       -5.66
                                                  
 Peru IGRA               15484.06     -0.7        -1.71
                                                  
 Venezuela IBC           2718.11      -0.93       -0.67
                                                  
                                                  
 Currencies                           daily %     YTD %
                                      change      change
                         Latest                   
 Brazil real             2.3312       0.63        1.10
                                                  
 Mexico peso             13.2182      0.34        -1.42
                                                  
 Chile peso              555.9        -0.29       -5.36
                                                  
 Colombia peso           2042.47      -0.02       -5.41
                                                  
 Peru sol                2.807        -0.07       -0.50
                                                  
 Argentina peso          7.8675       -0.16       -17.48

 Argentina peso          11.6         0.86        -13.79
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