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EMERGING MARKETS-Real gains post Brazil retail sales, Latam mixed
March 23, 2012 / 3:50 PM / 6 years ago

EMERGING MARKETS-Real gains post Brazil retail sales, Latam mixed

* Finance ministry official says real is still overvalued

* Region’s currencies to end week down on China fears

* Mexico peso off 0.1 pct, real strengthens 0.19 pct

By Caroline Stauffer

RIO DE JANEIRO, March 23 (Reuters) - Latin American currencies traded mixed on Friday, with Brazil’s real stronger after robust retail sales although the government’s commitment to intervention in the local market is likely to limit future gains.

Latin America’s currencies are poised to end the week losing ground from Monday after a series of disappointing reports from China cast doubt on the Asian giant’s future appetite for Latin America’s raw materials, possibly slowing regional growth.

But the Brazilian real bid 0.19 percent stronger from its Thursday close at 1.8173 on Friday.

Local data showed retail sales in Brazil rose more than expected in January, pointing to a recovery in the business cycle this year after growth in the region’s largest economy fizzled at the end of 2011.

“We saw strong figures in retail sales, that helped the currency a bit,” said Mauricio Rosal, chief economist at Raymond James & Associates in Sao Paulo.

Strong consumption makes some economists fear a new struggle with inflation is in Brazil’s future. Central Bank President Alexandre Tombini eased those concerns on Friday, saying consumer prices are expected to slow to the central bank’s target by the end of the year

”I think the focus on growth makes people nervous about inflation, but they aren’t selling Brazil assets indiscriminately, said Win Thin, currency strategist at Brown Brothers Harriman in New York.

Another key Brazil concern for investors is the government’s renewed commitment to intervening in the currency market. Finance Minister Guido Mantega said on Thursday intervention would continue and the finance ministry’s No. 2 official said on Friday the currency remains overvalued.

The real has weakened 5.5 percent since the central bank waded back into the spot market in February. The government, aiming to become a global power, is committed to protecting nascent industries that are made less competitive by a strong real in what it calls a global “currency war.”

“The authorities appear to have had more success in weakening the real this time around,” London-based Capital Economics Economist Neil Shearing wrote in a research note to clients. “This may be because investors perceive there is now a greater political will to prevent excessive appreciation.”

Mexico’s peso weakened after data from its top trading partner, the United States, showed a decline in new U.S. single-family home sales.

The peso, the region’s only fully convertible currency, was trading 0.1 percent weaker at 12.8348 per dollar after losing as much as 0.4 percent after the U.S. data.

“The Mexican peso is a high beta currency, in the longer term it will outperform but in the near term, given growth concerns it may get pushed around a bit,” said Thin of Brown Brothers Harriman.

“This is pretty minor data and the U.S. is generally seen as doing OK - the changing outlook is very much the China story,” he added.

Chile’s peso continued to weaken on Friday after closing at a two-week low in the previous session. The peso was off 0.12 percent at 489.3 per dollar.

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