EMERGING MARKETS-Brazil's real whipsaws as investors test trading band

Fri Aug 8, 2014 11:45am EDT

By Asher Levine
    SAO PAULO, Aug 8 (Reuters) - Brazil's currency, the real
, fluctuated near its weakest level in over four months on
Friday after weaker-than-expected inflation data encouraged
investors to test the central bank's willingness to protect an
informal trading band.
    Other currencies in the region were mixed while stocks fell,
with the MSCI Latin American stock index posting
its biggest loss in over a week.
    Data on Friday showed Brazil's consumer prices barely rose
in July, leading some investors to reduce bets on the pace of
interest rate hikes in 2015.
    The inflation print drove a slight drop on the short end of
the curve for Brazilian interest rate futures <0#DIJ:>, adding
downward pressure to the real.
    That movement may be short-lived however, said Silvio Campos
Neto, an economist with consulting firm Tendencias in Sao Paulo.
    "Despite the unfavorable global outlook, the relief is
small, because the market is maintaining its perspective that
inflation will rise again next year," he said.
    Traders said the real was also responding to lower risk
appetite after U.S. President Barack Obama authorized targeted
air strikes in Iraq on Thursday.
    The real hovered near the 2.30 per dollar level, at the top
of what some investors see as an informal trading band of 2.25
to 2.30 reais being enforced by the central bank though market
interventions.
    "As long as the bank doesn't offer any signal that it is
present, the market will continue to test (the band)," said one
trader who declined to be named because he is not authorized to
speak to the press.
    The Chilean peso strengthened about 0.2 percent as
bargain-hunters stepped in after the currency closed at its
weakest level in over five years on Thursday.
    Inflation in Chile reached 4.5 percent annually in July,
government data showed on Friday, within market expectations.
 
    In equity markets, Brazil's Bovespa stock index 
dropped for the third day in four, on track for its second
straight weekly loss.
    Most of the index's losses were driven by a nearly 4 percent
fall in state-run oil producer Petroleo Brasileiro SA 
after an electoral poll showed a tighter race between President
Dilma Rousseff and her rivals ahead of October's election. Many
investors see a Rousseff defeat as a potential boon to the
company, known as Petrobras.
    
    Key Latin American stock indexes and currencies at 1530 GMT:
 Stock indexes                             daily %     YTD %
                               Latest       change    change
 MSCI Emerging Markets           1045.66     -0.53      4.84
                                                    
 MSCI LatAm                      3366.66     -1.29      6.56
                                                    
 Brazil Bovespa                 55509.92     -1.21      7.77
                                                    
 Mexico IPC                     43961.82     -0.35      2.89
                                                    
 Chile IPSA                      3884.73     -0.56      5.02
                                                    
 Chile IGPA                     18964.65     -0.47      4.05
                                                    
 Argentina MerVal                8221.56     -0.24     52.50
                                                    
 Colombia IGBC                  14120.74     -0.59      8.03
                                                    
 Peru IGRA                      16905.24      0.26      7.31
                                                    
 Venezuela IBC                   2131.24     -0.81    -22.12
                                                    
                                                            
 Currencies                                daily %     YTD %
                                            change    change
                                  Latest            
 Brazil real                      2.2940      0.06      2.74
                                                    
 Mexico peso                     13.2284      0.39     -1.50
                                                    
 Chile peso                        575.8      0.21     -8.63
                                                    
 Colombia peso                   1889.59     -0.19      2.24
 Peru sol                          2.801      0.43     -0.29
                                                    
 Argentina peso (interbank)       8.2700      0.00    -21.49
                                                    
 Argentina peso (parallel)         12.77      0.55    -21.69
                                                    
 

 (Additinal reporting by Bruno Federowski; Editing by W Simon)
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