November 20, 2012 / 9:11 PM / 5 years ago

EMERGING MARKETS-Mexico peso firms, Brazil real wobbles near low

* Mexican peso gains on optimism about U.S. talks
    * Brazil real near 3-1/2-year low, intervention eyed
    * Chile peso firms, helped by interest rate hike bets

    By Michael O'Boyle
    MEXICO CITY, Nov 20 (Reuters) - Mexico's peso firmed on
Tuesday, helped by optimism over U.S. fiscal negotiations, while
Brazil's real teetered near a 3-1/2-year low, awaiting signs of
central bank intervention.
    Mexico's peso, one of the most freely traded emerging market
currencies, has whipsawed in tandem with U.S. stocks over
worries whether U.S. lawmakers will be able to stave off
impending tax hikes and spending cuts that could hobble the
    The Mexican peso  firmed 0.29 percent to
13.0175 per dollar, its fourth session of gains. 
    The peso has rallied 2 percent back from a 10-week low last
week, on hopes the U.S. would avoid the "fiscal cliff," a
combination of spending cuts and tax rises due to be implemented
under existing law in early 2013 that may cut the federal budget
deficit but also tip the economy back into recession. 
    Following U.S. President Barack Obama's re-election, the
peso slumped and its technical outlook deteriorated sharply,
suggesting deeper losses ahead. 
    But the currency's rally during the past four sessions drove
the cost of dollars in pesos below its 200-day and 100 day
moving averages.
    After its recent rally, Nomura strategist Benito Berber
reckons the peso is currently pricing in about a 10 percent to
15 percent chance of failure by U.S. lawmakers, down from about
a 20 to 25 percent chance last week.
    "There is at least a more amicable tone in the talks, but
this is very short term," Berber said, adding the peso could
slump back toward 13.50 per dollar if the market starts to bet
on failure in Washington.
    As the peso weakened, total bets on the Chicago exchange for
 a stronger peso fell to $3.7 billion last week from a record
high of $5.5 billion in late September.
    That still leaves a lot of investors betting on a strong
peso, investors who could face stop loss levels above the peso's
low last week of 13.29 per dollar.
     The Brazilian real  traded nearly flat at
2.0805 per dollar, just off its weakest levels since May 2009
that it hit on Friday. Currency trading was low with the local
stock market closed for a holiday.
     After trading in a narrow range since July, the real last
week saw its steepest weekly slump since early June. The
currency's tumble could push Brazil's central bank to intervene
soon in the foreign exchange market, analysts said.
    The Chilean peso firmed 0.4 percent, following a 1
percent surge on Monday, after strong economic data in the third
quarter stoked bets that the central bank could raise interest
rates. Higher interest rates attract yield-hungry investors.
    Chile's economy kept expanding at a fast clip in the third
quarter versus the year-earlier period, fueled by a jump in
domestic demand, central bank data showed on Monday.

    Latin American currencies at 2050 GMT
 Currencies                     daily  year-t
                                    %   -date
                       Latest  change       %
 Brazil real           2.0805    0.02  -10.19
 Mexico peso          13.0175    0.29    7.31
 Argentina peso*       6.3400    0.32  -25.39
 Chile peso          477.9000    0.40    8.66
 Colombia peso      1,815.950    0.14    6.74
 Peru sol              2.5990   -0.08    3.77
 * Argentine peso's rate                     
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