| RIO DE JANEIRO
RIO DE JANEIRO Dec 18 Latin American financial
markets gained on Wednesday as the Federal Reserve suggested
U.S. interest rates will stay low for longer than expected,
soothing investors who were surprised by the bank's decision to
start winding down its stimulus program.
Stocks and currencies in the region initially slid in a
knee-jerk reaction to the Fed's announcement that it will cut
its $85 billion-a-month bond-buying program by an initial $10
The move, which generally was not expected until next year,
could reduce the supply of dollars that tend to flow into
emerging market economies seeking higher returns.
But markets soon bounced back as investors focused on the
Fed's suggestion that it may keep overnight rates near zero
"well past the time" that the jobless rate falls below 6.5
"Liquidity will remain very ample for a very long time,
meaning that investors will have no choice other than continuing
to look for opportunities in risky assets," Alberto Bernal, head
of research at BullTick Capital Markets, wrote in a note to
The Mexican peso last traded 0.6 percent stronger at
12.8850 per dollar, reversing losses of more than 0.6 percent
recorded right after the Fed's announcement. Mexico's IPC stock
index shot 1.2 percent higher.
Analysts said Mexico should benefit from improving economic
conditions in its northern neighbor more than other Latin
"For Mexico, this should be a positive development as an
improvement in the U.S. market will likely result in an
improvement in Mexico's economic conditions," said Gabriel
Lozano, JP Morgan economist for Mexico.
Mexico's banking regulator Jaime Gonzalez admitted that
interest rates are likely to rise in Mexico as the Fed begins to
withdraw its stimulus, but added that domestic economic strength
would help cushion the blow.
"Markets continue to recognize the fundamentals of the
Mexican economy and that we don't depend exclusively on that
additional liquidity that is in the economy."
While Mexico's growth is expected to notch a paltry 1.3
percent this year, well below the 3.8 percent recorded in 2012,
a host of reforms spearheaded by President Enrique Pena Nieto -
including a long awaited opening of the energy sector to private
investment - are expected to boost growth going forward.
Most Brazilian markets were already closed when the Fed's
decision was released, but future contracts for stocks and the
currency, which were still trading on the BM&FBovespa exchange,
also posted gains after an initial slide.
The real , which closed 0.81 percent weaker at
2.34 per dollar prior to the Fed's decision, trimmed losses in
the futures market. Brazil's benchmark Bovespa index
future contracts for February rallied 2.1 percent.
Earlier on Wednesday, Brazil's Finance Minister Guido
Mantega called on U.S. policymakers to start winding down their
monetary stimulus sooner rather than later to reduce global
Brazil's real has weakened over 10 percent so far this year,
more than most Latin American currencies, as investors worry
about a deterioration in the country's economic fundamentals
that could result in a sovereign debt downgrade by at least one
ratings firm next year.