UPDATE 1-Colombian markets surge after ratings upgrade

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BOGOTA, June 11 (Reuters) - Colombia's peso COP=RR rose 1.9 percent to 2,016 per U.S. dollar on Thursday and local stocks surged 1.88 percent after the country was promoted to investment grade by Canada-based credit rating agency DBRS.

Colombia has earned praise from analysts for its policy response to the global slowdown. The peso has risen more than 12 percent since May, rattling the nerves of exporters who pay their costs in pesos but receive dollars for their sales.

Riskier emerging market currencies are more in demand in recent weeks amid signs that the global economic recession is easing. The ratings upgrade gave the currency a further boost.

“After spending weeks reviewing Colombia, we came to the conclusion that Colombia has changed structurally and in terms of policy,” Fergus McCormick, a senior vice president at DBRS, told Reuters.

The firm upgraded the government’s long-term foreign currency rating to BBB-low from BB-high and its long-term local currency rating to BBB from BBB-low.

The local stock market .IGBC jumped 1.88 percent on the news to end the session at 9,630.54. Colombian shares are up 27.4 percent so far this year after losing more than 29 percent last year.

The debt of Colombia, which lost its investment grade rating as a consequence of the country’s 1999 economic meltdown, is still rated below investment grade by major ratings agencies such as Moody’s Investors Service and Fitch.

“The upgrades underscore the steady improvements that Colombia has made in debt management, macroeconomic policy credibility and public security,” McCormick said. “The upgrades also reflect the likelihood of policy continuity through the elections in 2010 and a more resilient balance of payments.”

Even if a global recovery is delayed, evidence suggests the Colombian economy will remain resilient.

Gross domestic product, hurt by falling commodity export revenues, is stagnating this year after expanding 2.5 percent in 2008.

The country’s policy response to the global economic malaise, in terms of cutting government spending and slashing interest rates, has been mostly welcomed by economists. (Reporting by Javier Mozzo, writing by Hugh Bronstein, Editing by Chizu Nomiyama)