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EMERGING MARKETS-Latam currencies mixed; Brazil mulls controls
July 6, 2011 / 9:07 PM / 6 years ago

EMERGING MARKETS-Latam currencies mixed; Brazil mulls controls

* U.S. service, job data eases China, Portugal concern

* Mexico and Chile pesos reverse declines, strengthen

* Brazil president considers measures to check real’s gain

* Brazilian real weakens; Colombia’s Peso, Peru’s sol firm

By Jeb Blount

RIO DE JANEIRO, July 6 (Reuters) - Latin American currencies traded mixed on Wednesday as U.S. economic data eased concern about the global implications of higher borrowing costs in China and a downgrade of Portuguese debt.

A U.S. employment survey suggested the world’s largest economy will start adding jobs at a faster pace later this year, while the U.S. service sector slowed in June at a rate anticipated by economists. For more, see: [ID:nN1E7650H8]

These factors helped Mexico’s peso, Latin America’s most-traded currency, reverse an early loss. It firmed 0.1 percent to 11.6275 to the dollar, its seventh gain in eight sessions that have seen the peso jump than 2 percent.

“In the balance, the positive outlook from the U.S. outweighed concern about events in Portugal,” said Ramon Cordoba, a currency trader at Base Banca Multiple, a Monterrey, Mexico bank.

Mexico gets about 80 percent of its export earnings from the United States.

Earlier the peso and most other Latin American currencies weakened on reports from China and Portugal.

China on Wednesday lifted its benchmark lending rate to 6.56 percent, the third hike this year, raising concern the world’s second-largest economy and biggest buyer of iron ore, copper, soybeans and other Latin American commodities will slow. [ID:nL3E7I61NQ]

In Europe, Moody’s Investors Service downgraded Portugal on Tuesday to Ba2, a “speculative” or “junk” rating. The decision raised concern about the ability of Europe’s banks to lend if they are saddled with losses from sovereign defaults. [ID:nN1E764185]

Brazil’s real weakened 0.3 percent to 1.568 to the dollar, its second day of losses after a six-day rally in which the real rose to its strongest levels in 12 years.

After slipping in early trading on concerns about China and Portugal, it soon gave up losses to post a small gain.

BRAZIL MULLS CONTROLS

The Brazilian currency reversed direction again to weaken on expectation President Dilma Rousseff may back measures to halt the currency’s 6 percent gain against the dollar this year.

The increase has undermined the competitiveness of Brazilian manufactured goods in export markets.

“The real is definitely too strong at its current level, and (Rousseff) wants to do something about it,” a government source told Reuters. “No decision has been made at this point ... It could be five days, a week, a month.” [ID:nN1E7650T5]

Rousseff’s concerns come as foreign investors raise their bets that the real will continue gaining.

These bets, the so called “net real longs,” jumped 0.2 percent to a notional value of $23.3 billion on Tuesday from $23.2 billion on Monday, according to Sao Paulo’s BM&F exchange and Reuters.

The foreign net real longs are just shy of the record $23.5 billion recorded last Friday.

The latest increase came the same day as Finance Minister Guido Mantega said that he was ready to apply new measures to halt the real’s appreciation, including measures aimed at the futures and derivatives markets. [ID:nL6E7I50OD]

When the foreign net real longs reached $20 billion in April, the government moved in with new taxes on foreign loans, expanding so-called soft currency controls.

A real stronger than 1.55 to the dollar is the likely point at which the government will apply new controls, said Enrique Alvarez, Latin America analyst with IDEAGlobal in New York.

Chile's peso CLP= reversed early losses to firm 0.3 percent to 465.80 to the dollar, its strongest in two months.

An “excess of dollars” in the market, perhaps from companies selling their foreign currency for taxes or investment, may be behind the decline, traders said.

Elsewhere in Latin America, the Colombian peso COP2=STFX gained 0.2 percent to 1,766.00 to the dollar, while Peru's sol PEN=PE gained 0.2 percent to 2.745. (Additional reporting by Brian Winter in Sao Paulo, Froilan Romero in Santiago; Editing by Dan Grebler)

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