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EMERGING MARKETS-Mexico peso up on Bernanke, Chile peso slumps
October 4, 2011 / 6:50 PM / 6 years ago

EMERGING MARKETS-Mexico peso up on Bernanke, Chile peso slumps

* Bernanke keeps hopes alive of further Fed stimulus

* Euro-zone worries seen keeping pressure on Latam FX

* Chile’s peso hits 14-month low on copper’s rout

By Michael O‘Boyle and Jean Luis Arce

MEXICO CITY, Oct 4 (Reuters) - Mexico’s peso gained on Tuesday after the head of the U.S. Federal Reserve raised hopes of more economic stimulus, but Chile’s peso slid to a 14-month low on a rout in copper prices.

Mexico’s peso advanced and U.S. stocks cut losses after Fed Chairman Ben Bernanke said the central bank is prepared to act further to help the economy of the United States, which is Mexico’s top trading partner. [ID:nW1E7KM007]

“The signal that the Fed could take more action down the line is what gave markets a bit of a boost,” said Alejandro Padilla, an analyst at Banorte-Ixe in Mexico City.

Mexico's peso MXN=MXN=D2 rose 0.77 percent to 13.96 per dollar. Four straight sessions of steep losses had taken it within striking distance of a more than two-year low.

But analysts said the peso and Latin American currencies would remain vulnerable to more losses. The euro zone’s debt troubles will likely push investors to keep dumping riskier assets, such as emerging market currencies and debt, analysts said.

“In the medium term, the issue of Europe is going to keep weighing. There is clearly the worry about whether Greece will be able to meet its obligations,” Padilla said.

European finance ministers are considering making banks take bigger losses on Greek debt and have postponed a vital aid payment to Athens until mid-November, setting up a moment of truth in the euro zone’s sovereign debt crisis. [ID:nL5E7L419D]

Investors fear another financial crisis could further drag down global growth just as the U.S. and European economies are already slowing down.

Brazil’s real BRBY bid 0.18 percent firmer at 1.8870 per dollar, helped by an auction of currency swap contracts that mimic the purchase of dollars in the futures market and provide investors with insurance against declines in the value of the real. [ID:nN1E7930UT]

Brazil’s central bank has been intervening in its currency market to bolster the real, and some analysts think authorities could step up efforts to support the local currency if it breaks 1.90 per dollar.

Brazil’s real has slumped about 18 percent since late July. The currency was undercut in August after the central bank made a surprise move to cut interest rates, curbing the appeal of the currency to yield-hungry investors.

Expectations that Brazil could further relax monetary policy are sapping support for the currency. The real had been a favorite bet for emerging market investors due to the country’s high interest rates for much of the recovery from the 2008 financial crisis.

Meanwhile, Mexican authorities have recently suggested they will not intervene in the market to support the peso. Mexico’s peso has shed around 16 percent since late July.

Chile's peso CLP=CL shed 1.8 percent to bid at 534.70 per dollar as prices for copper, the country's main export, continued to slump, also trading near a 14-month low

“There is no recovery in copper, so there will be no respite for the peso,” said Daniel Soto, an analyst at Forex Chile.

Chile’s peso has lost 17 percent since late July. (Additional reporting by Froilan Romero in Santiago; Editing by Jan Paschal)

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