December 18, 2018 / 9:54 PM / 6 months ago

EMERGING MARKETS-Latam currencies fail to capitalize on soft dollar, stocks rise

 (Recasts, updates prices, adds market strategists' quote)
    By Aaron Saldanha
    Dec 18 (Reuters) - Latin American currencies failed to gain
against a weak dollar on Tuesday, as cautious investors pared
exposure ahead of the end of the U.S. Federal Reserve's two-day
meeting on Wednesday, while Latin American stocks ticked up in
line with their U.S. peers.
    Market participants shirked riskier assets in emerging
markets and exited bullish positions on the dollar, adding safe
haven currencies such as Japan's yen and the Swiss franc
 to their portfolios.
    In the United States, the Dow Jones Industrial Average
 and the Nasdaq Composite recorded minor gains
while the S&P 500 ended flat.
    Many investors are betting the Fed will signal a cautious
outlook to its path for raising interest rates in 2019. A hike
in borrowing costs on Wednesday is broadly expected, with
markets according that outcome a probability of about 73
percent, as per the CME FedWatch tool.
    "With expectations going into the meeting already dovish,
the risk reward is not great, especially for EM currencies
against a weak macro backdrop," Citigroup Head of Emerging
Market Strategy Dirk Willer and Emerging Markets FX Strategist
Kenneth Lam wrote in a note.
    Brazil's real weakened 0.3 percent while the Bovespa 
stocks index tacked on 0.2 percent, aided by gains in
the financials and materials sectors.
    Giant miner Vale SA rose for a fourth straight
session, trading up 0.4 percent.
    However, state-controlled oil firm Petroleo Brasileiro
 slid 3.4 percent to a more than two month closing
low, weighed on by a steep drop in global oil prices.

    Mexican stocks gained 1.4 percent to make back a
chunk of Monday's 2.4 percent loss while the peso was 
little changed before the Fed decision. The central bank of
Latin America's second largest economy is due to take a call on
interest rates a day after the Fed, on Thursday.
    The Banco de Mexico is expected to raise its key interest
rate by 25 basis points to 8.25 percent, which would be its
highest level since August 2008, a Reuters poll found.

    Matching the negative sentiment of its regional currency
peers, Colombia's peso slid 0.9 percent, while its
Chilean peer weakened 0.3 percent.
    Argentina's equity benchmark slipped 0.4 percent to
sink to a fresh near one-month closing low, while its peso
 softened marginally.       
    Key Latin American stock indexes and currencies at 2127 GMT
 Stock indexes                           daily %     YTD %
                             Latest       change    change
 MSCI Emerging Markets          962.98      -0.5    -16.87
 MSCI LatAm                    2522.76      0.49     -10.8
 Brazil Bovespa               86610.49      0.24     13.36
 Mexico IPC                   40884.29      1.35    -17.16
 Chile IPSA                    5116.83      0.23      0.23
 Argentina MerVal             29777.26     -0.37     -0.96
 Colombia IGBC                11361.04     -0.31     -0.08
 Currencies                              daily %     YTD %
                                          change    change
 Brazil real                    3.9118     -0.28    -15.30
 Mexico peso                   20.0857     -0.08     -1.93
 Chile peso                      689.8     -0.29    -10.89
 Colombia peso                 3203.56     -0.79     -6.92
 Peru sol                        3.347     -0.24     -3.29
 Argentina peso                38.2600      0.05    -51.39

 (Reporting by Aaron Saldanha in Bengaluru
Editing by Alistair Bell)
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