August 29, 2011 / 4:55 PM / 8 years ago

EMERGING MARKETS-LatAm currencies firm on U.S. growth surprise

 * U.S. consumer data beats expectations, lifts Mexico peso
 * Brazil minister moves to limit government spending
 * Brazil real, Chile peso, Colombia peso rise.
 By Jeb Blount/Jean Luis Arce
 RIO DE JANEIRO/MEXICO CITY, Aug 29 (Reuters) - Latin
American currencies gained against the U.S. dollar on Monday,
led by Mexico's peso, after better-than-expected U.S. economic
activity reduced concern that the world's largest economy is
entering another recession.
 U.S. consumer spending USGPCS=ECI rose 0.8 percent in
July, its fastest pace in five months, the U.S. Commerce
Department said on Monday. The result beat the 0.5 percent
expected by 59 economists surveyed by Thomson Reuters
ECONALLUS. For more see [ID:nN1E77S0BS].
 The United States is responsible for about 80 percent of
Mexico's export earnings and is the largest or second-largest
trading partner of most Latin American countries.
 "When you get news of growth in the U.S., that's better for
the peso," said Marcelo Salomon, chief economist for Brazil and
Mexico at Barclay's Capital in New York. "Concern about the
United States going into recession would have been bad news not
just for Mexico but for the rest of Latin America as well."
 Mexico's peso MXN=D2 strengthened 0.66 percent to 12.4139
to the U.S. dollar.
 The gains were likely aided by technical factors. Net
speculative bets the peso will gain slipped to their lowest
since May 2010 in Chicago futures trading MXPU1 in the week
ending Aug. 24, according the the U.S. Commodities Futures
Trading Commission.
 The low level means relatively few speculators are exposed
to the risk of a stronger peso, opening space for them to bet
on Mexico's currency if their risk appetite rises.
 There remains a good chance that the peso will reverse its
gains if other U.S. data releases this week fail to bolster the
growth outlook, said Salomon, as did Delia Paredes, a currency
analyst at Banorte-IXE in Mexico City.
 "The data we are going to see will come in under a better
light even though the data could keep showing weakness," she
said. "The risk of a recession is still there at 40 percent."
 She expects the peso to strengthen beyond 12 to the dollar
in the coming months and finish the year at 11.50.
 Mexico's benchmark 10 year bond in pesos, known as a "bono"
MX10YT=RR, fell 0.14 to 105.39 percent of face value.
 Brazil's real BRBY gained 0.44 percent to 1.5960 to the
dollar while its 10-year, local-currency National Treasury Note
BR10YT=RR surged 18.78 to 942.94, or 94.29 percent of face
 The yield fell 42 basis points to 11.32 percent, its lowest
level in a year.
 "With continued concern about world growth despite the U.S.
data we are in a sensitive spot in Latin America, a place where
we're likely to see weak monetary policy and tighter fiscal
policy," Salomon said. "That should cause bond yields to fall
and currencies to appreciate."
 Overnight interest rate futures DIJF2 have been plunging
this month in Brazil as investors price-in expectation that
Brazil will cut its 12.5 percent interest rate, the highest of
any major economy, before the end of the year. [ID:nN1E77P1T4]
 Failure to cut or control government spending as the
Brazilian government tries to loosen monetary policy to promote
growth could cause the lower yield, stronger currency trend to
reverse, Salomon said.
 Brazil's finance minister Guido Mantega said on Monday
announced plans to increase the country's so-called "primary
surplus" or excess of revenue over expenses before payments on
government debt by 10 billion reais (US$6.3 billion).
 "This signifies more solidity, more investment and lower
interest rates," Mantega said. He added that the measures were
being made to preserve growth in the face of deteriorating
economic conditions in the United States and Europe and that he
expected world economic problems to cause volatility in the
exchange rate and in stock prices.
 Elsewhere in Latin America, Chile's peso CLP=CL firmed
0.2 percent to 464.70 to the dollar. Colombia's peso
COP2=STFX firmed 0.38 percent to 1,787,50.
 Peru's sol PEN=PE was little changed from Friday at
2.7290 to the dollar.
 Argentina's official peso ARS=RASL was little changed at
4.1250 to the dollar. The unofficial ARSB= or "parallel" peso
firmed 0.40 percent to 4.42 to the dollar.
 (Additional reporting by Michael O'Boyle in Mexico City;
Editing by James Dalgleish)

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