* Weaker world economic outlook cuts risk appetite
* Price for regions metals, oil, grains plunge
* Brazil real slips the most since Oct. 19
* Chile peso weakens 0.39 percent.
By Jeb Blount
RIO DE JANEIRO, May 5 Latin American currencies
weakened for a second day on Thursday, led by the Brazilian
real, as commodity prices plunged and data suggested the global
economic recovery is faltering.
The real BRBY shed 1.21 percent, its biggest one-day
decline in more than six months, to close at 1.613 to the
dollar, its weakest end-of-session level since March 31.
Iron-ore, oil, sugar, soybeans, beef and coffee -- Brazil's
principal commodities exports -- all fell.
Chile's peso CLP= weakened 0.6 percent to 468.10, its
weakest close since April 20. Copper, the country's biggest
export, fell to its lowest in five months.
The Mexican currency MXN= weakened 0.67 percent to
11.7246 to the dollar after earlier reaching 11.74, the lowest
in about two weeks. Oil, its biggest export earner, fell below
$100 a barrel in the United States for the first time since
"There are genuine doubts about the global recovery and a
feeling that it is losing some traction," said Michael Derks,
chief currency strategist with FXPro, a London-based retail
currency broker. "That has created a pretty strong impulse to
risk aversion which is weighing on commodities prices and
high-beta currencies such as Brazil."
Signs the U.S. service sector is slowing, German factory
orders are down, and that China is seeking to limit inflation
have led some to believe the cycle of high commodities prices
may be ending.
Emerging market currencies in general frequently undergo
large swings against the dollar. Such risk forces governments
and companies in these countries to pay higher returns for the
right to borrow money, increasing their appeal to global
Interest rates have remained near zero in the United States
since late in 2008, allowing investors to borrow cheaply in
dollars and pour the proceeds into emerging markets where rates
are higher, a bet known as the carry trade.
A global economic slowdown could make the carry trade
riskier, especially with so many investors betting the region's
currencies will rise, he said.
Returns on the popular carry trade in Brazil have slipped
to about 1 percent from nearly 7 percent in April after the
government raised taxes on some dollar loans, according to BNY
"You have very long positions in the carry trade in the
commodities currencies in Latin America and even small
movements in conditions or commodities prices can create large
movements in the currencies," Derks said. "It's like when
there's a party and everyone tries to leave the party at
In addition to copper's declines, light crude fell 8.9
percent on the New York Mercantile Exchange CLc1, hitting
$99.61 a barrel, its lowest since March 17. Soybeans SK1 fell
2.26 percent. Coffee KCN1 fell 5.5 percent. Iron-ore for July
settlement slipped 1.45 percent and sugar fell 2.3 percent.
Mexico, Brazil and Colombia are large oil producers. Brazil
is the world's second-largest soybean producer and the largest
producer of coffee and sugar. Colombia is a major coffee
Yield spreads between emerging market bonds and U.S.
Treasuries, a key gauge of risk aversion, rose to 192 basis
points, or 1.95 percentage points more than comparable U.S.
Treasuries, according to JPMorgan Chase & Co.'s EMBI+ index
(Editing by Stuart Grudgings and Chizu Nomiyama)