EMERGING MARKETS-Stocks, currencies stabilize after Ukraine worries

Wed Mar 5, 2014 2:05pm EST

By Walter Brandimarte and Natsuko Waki
    RIO DE JANEIRO/LONDON, March 5 (Reuters) - Emerging markets
steadied on Wednesday as the United States and Russia held talks
on Ukraine, at least temporarily easing East-West tensions that
prompted a selloff in global markets earlier this week.
    Investors were cautious, however, over the outcome of a
face-to-face meeting between U.S. Secretary of State John Kerry
and Russian Foreign Minister Sergei Lavrov in Paris and
following weaker-than-expected private sector employment data in
the United States. 
    Concern about the Chinese economy also drove iron ore prices
to a eight-month low, causing shares of Brazilian miner Vale
 to drop nearly 3 percent and weighing on Brazil's
benchmark Bovespa stock index. 
    While most markets were able to shrug off the U.S. data on
hopes it was just a temporary weather-related issue, anxiety
about Ukraine lingered, curbing larger gains in the broader MSCI
index for emerging market stocks, which traded 0.4 percent
higher.
    Investors wondered whether Western powers will succeed in
persuading Moscow to pull its forces back in Crimea, a strategy
to reduce risk of a possible war that has unnerved global
markets. 
    "Investors are still nervous. (Russian President Vladimir)
Putin has left all his options open," said Thu Lan Nguyen,
emerging market strategist at Commerzbank in Frankfurt.
"Investors are worried about an economic impact if the West were
to decide on economic sanctions."
    Russian shares  dropped slightly, trimming
larger losses recorded earlier in the day, while the rouble
 was mostly stable against the dollar. 
    Russia has relatively little foreign debt but its balance of
payments position is deteriorating because of capital outflows
and falling oil revenues.
    The central bank said it had spent the equivalent of $11.4
billion - more than 2 percent of its foreign currency reserves -
on Monday supporting the rouble.
    "The market is not expecting an escalation in conflict in
the short term but Kerry is still considering sanctions... so
net net, there is no clear way out of here," said Regis
Chatellier, strategist at Societe Generale.
    Kerry has raised the possibility of economic sanctions such
as asset freezes and visa bans on Russian individuals.
    
    CHINA CONCERNS
    Chinese shares fell 0.9 percent  after
money-losing Chinese solar equipment producer Chaori Solar
 said it will not be able to meet interest payments
on bonds due on Friday, marking the country's first domestic
bond default.
    The yuan rose 0.25 percent against the dollar,
however, after suffering its biggest weekly drop since 1994 last
week as the central bank let it fall beyond the official
mid-point rate.
    Many traders thought the move was designed to set the stage
for further foreign exchange reforms as China began its annual
parliamentary meeting on Wednesday.
    "The goal is to liberalize the FX regime and financial
markets but the problem is there's not a lot of transparency,"
Nguyen said. "A lot of people expect the yuan to appreciate but
it is not a one-way street."
    Concern about a slowdown in the Chinese economy weighed on
countries and companies that are highly dependent on raw
materials exports to the world's second-largest economy.
 
    Brazil's Bovespa index slid 0.8 percent, dragged
lower by shares of miners, and the Chilean peso weakened
0.5 percent. Chile's economy is highly dependent on copper
exports to China.
    Also weighing on the Chilean peso was data showing the
country's economic activity rose at its weakest pace in four
years in January. 
    The Brazilian real resumed trading after a long
Carnival holiday with gains of nearly 1 percent, but traders
said volumes were low, leaving the exchange rate prone to
overshoot in any direction.
    
    Key Latin American stock indexes and currencies at 1844 GMT
    
     Stock indexes                     daily %    YTD %
                          Latest       change     change
 MSCI Emerging Markets   960.3         0.43       -4.64
                                                  
 MSCI LatAm              2945.52       0.23       -8.19
                                                  
 Brazil Bovespa          46665.06      -0.91      -9.40
                                                  
 Mexico IPC              39110.24      0.07       -8.47
                                                  
 Chile IPSA              3706.85       0.08       0.21
                                                  
 Chile IGPA              18293.65      0.08       0.37
                                                  
 Argentina MerVal        5740.71       -0.75      6.49
                                                  
 Colombia IGBC           12732.89      1.5        -2.59
                                                  
 Peru IGRA               15194.07      -0.11      -3.55
                                                  
 Venezuela IBC           2743.75       -0.89      0.26
                                                  
                                                  
 Currencies                            daily %    YTD %
                                       change     change
                         Latest                   
 Brazil real             2.3210        0.97       1.54
                                                  
 Mexico peso             13.241        0.31       -1.59
                                                  
 Chile peso              562.6         -0.52      -6.49
                                                  
 Colombia peso           2038.98       0.45       -5.25
                                                  
 Peru sol                2.8           0.18       -0.25
                                                  
 Argentina peso          7.8800        -0.10      -17.61

 Argentina peso          10.45         7.66       -4.31
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