By Walter Brandimarte and Natsuko Waki
RIO DE JANEIRO/LONDON, Feb 25 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
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
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
"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'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
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 %
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