December 6, 2012 / 12:25 AM / 5 years ago

EMERGING MARKETS-Brazilian real gains for 3rd day on govt action

* Brazil narrows reach of IOF tax on foreign loans
    * Chile economy grows at fastest annual pace of 2012
    * Brazil real gains 0.95 percent, Mexico peso 0.14 percent

    By Walter Brandimarte
    RIO DE JANEIRO/MEXICO CITY Dec 5 (Reuters) - Brazil's real
gained for a third consecutive session on Wednesday after the
government unveiled yet another measure that facilitates dollar
inflows to the country, while the Chilean peso rose on data
showing domestic economic activity sped up in October.
    The real  rose 0.95 percent to close at 2.0955
per U.S. dollar as the government announced it was reducing the
reach of a financial transaction tax known as IOF on foreign
borrowing by domestic companies. 
    That was the latest in a series of measures announced by the
Brazilian government this week to boost the domestic supply of
dollars, which are usually more scarce at the end of the year.
On Tuesday, the central bank narrowed the scope of the IOF to
export prepayments, and on Monday it sold dollars directly to
    "The government is really loosening the tie in the past
couple of days," said Reginaldo Galhardo, a manager at the
currency desk of Treviso brokerage in Sao Paulo. "It is backing
off because it sees dollars are in short supply."
    While traders discussed whether the government was defending
a new floor for the real around 2.1 per dollar, most economists
agree policymakers mostly aim to smooth out end-year currency
    Barclays analysts said seasonal factors or negative
sentiment toward the country have been pressuring the real to
weaker levels at a fast pace. 
    "In our view, policymakers will continue to intervene in the
market in order to prevent fast bouts of depreciation of the
real, but given the weak growth background, we believe there is
little, if any, intent to pull the currency below 2.10,"
analysts Guilherme Loureiro and Marcelo Salomon wrote in a
research note.
    In a sign that investors are betting on a weaker real in the
short term, banks adopted a net long dollar position worth $998
million at the end of November, according to central bank data.
    Expectations that Brazilian policymakers would favor a
weaker currency to boost exports grew after data showed the
country's economy grew at half the rate economists expected in
the third quarter.
    In Chile, on the other hand, faster-than-expected economic
activity helped drive the peso 0.31 percent higher to
479.20 per dollar. The peso had already gained 8.4 percent so
far this year, leading gains among Latin American currencies.
    Growth in Chile's economic activity accelerated to 6.7
percent in October from the same month a year ago, above
analysts' expectations for a 6.4 percent pace and making the
world's top copper producer more attractive to foreign
    Also supporting the Chilean peso were dollar inflows from
mining companies, traders said.
    Other Latin American currencies also gained on Wednesday,
with the Mexican peso rising 0.14 percent to 12.9325 per
greenback, as appetite for emerging market assets was supported
by expectations of strong Chinese growth.
    Chinese Communist Party chief Xi Jinping said overnight that
the country would ensure stable economic growth and stabilize

    Latin American FX prices at 0023 GMT:
 Currencies                            daily %  year-to-
                                        change     ate %
                              Latest              change
 Brazil real                  2.0 955      0.95    -10. 83 
 Mexico peso                 12.9 325      0.1 4      8. 02 
 Argentina peso*              6.4200      0.31    -26.32
 Chile peso                 479.2000      0.31      8.37
 Colombia peso            1,811.8000      0.06      6.99
 Peru sol                     2.5790      0.04      4.58
 * Argentine peso's rate between                        
0 : 0
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