EMERGING MARKETS-Brazil stocks struggle to advance after recent surge

Mon Apr 14, 2014 1:05pm EDT

By Asher Levine
    SAO PAULO, April 14 (Reuters) - Brazilian stocks struggled
to advance on Monday but remained close to recent highs, while
the country's currency strengthened, outpacing its regional
peers.
    Brazil's Bovespa index has gained about 15 percent
since local stocks began rallying on March 17 and reached its
most recent peak on April 8, driven by rising risk appetite
among global investors and heightened expectations for a change
in economic policy following October's presidential election.
.
    On Monday, the Bovespa traded nearly unchanged, down 0.06
percent to 51,834 points, not far from its 4-1/2 month intraday
high on April 8 of 53,393 points.
    The rally paused last week as investors took profits, with
further gains limited by technical resistance near 52,200
points. The market tested that resistance level again early on
Monday.
    "It's a normal case of the market settling," said Jose Faria
de Azevedo, head of technical analysis at Rio de Janeiro
brokerage Lopes Filho, who expects the index to hold onto most
of its recent gains. "You have a different market now, a higher
chance of seeing congestion at this level...but you have time to
gain space for additional gains."
    Still, a technical indicator known as the relative strength
index remained at 65 points on Monday, near the 70-point
threshold that defines the market as "overbought," meaning
investors may be tempted to lock in additional profits soon.
    Mexico's IPC stock index rose about 0.34 percent,
making up for Friday's losses, while Chile's IPSA index 
edged 0.2 percent higher.
    In currency markets, Brazil's real firmed about 0.5
percent to 2.21 per U.S. dollar.
    The real strengthened past 2.20 per dollar early last week
for the first time in over five months as global investors
continued to pour money into Brazil in search of higher yields.
While the central bank has carried out daily currency market
interventions to smooth out volatility and the real has given
back some of those gains, investors are testing the bank's
willingness to counter a stronger real, which helps ease
inflation pressure.
    A weekly central bank survey of economists released Monday
forecast year-end inflation at 6.47 percent, a hair below the
tolerance ceiling of the central bank's inflation target. Yields
on Brazilian interest rate futures <0#2DIJ:> rose across the
curve.
    "Once again, the inflation data suggest that the central
bank will have few other options but to raise (interest rates)
once again at its meeting at the end of May," wrote Andre
Perfeito, chief economist with Gradual Investimentos in Sao
Paulo.
    Higher interest rates tend to favor the strengthening of a
currency, other factors being equal.
    Elsewhere in Latin America, the Chilean and Mexican pesos
  both weakened about 0.1 percent against the dollar,
while Colombia's peso was nearly flat.
    Latin American currencies should see additional volatility
this week, analysts said, as investors watch for key data
releases from China and the United States and markets set to
close for the Good Friday holiday.
    "What you expect is low liquidity in the market, which
points to a lot of volatility in the first days of the week,"
said Juan Barco, an analyst with Helm Group in Bogotá.
    
    Key Latin American stock indexes and currencies at 1601 GMT:
 Stock indexes                             daily %     YTD %
                               Latest       change    change
 MSCI Emerging Markets           1011.78     -0.36      1.27
                                                    
 MSCI LatAm                      3292.73     -0.07      2.95
                                                    
 Brazil Bovespa                    51834     -0.06      0.63
                                                    
 Mexico IPC                     40519.27      0.34     -5.17
                                                    
 Chile IPSA                      3876.77      0.22      4.80
                                                    
 Chile IGPA                     18990.57      0.29      4.19
                                                    
 Argentina MerVal                 6470.7      0.03     20.03
                                                    
 Colombia IGBC                  13894.87      0.53      6.30
                                                    
 Peru IGRA                      14778.97      0.61     -6.19
                                                    
 Venezuela IBC                   2456.02     -1.95    -10.25
                                                    
                                                            
 Currencies                                daily %     YTD %
                                            change    change
                                  Latest            
 Brazil real                      2.2096      0.48      6.66
                                                    
 Mexico peso                     13.0503     -0.15     -0.16
                                                    
 Chile peso                        549.4     -0.07     -4.24
                                                    
 Colombia peso                   1926.09      0.05      0.31
 Peru sol                          2.782      0.00      0.40
                                                    
 Argentina peso (interbank)       8.0000      0.03    -18.84
                                                    
 Argentina peso (parallel)         10.33      0.77     -3.19
                                                    
 
    

 (Additional reporting by Nelson Bocanegra in Bogota Editing by
W Simon)
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