EMERGING MARKETS-Brazil real gains for 5th session, Turkey lira drops
By Walter Brandimarte and Natsuko Waki RIO DE JANEIRO/LONDON, Feb 25 (Reuters) - Brazil's real on Tuesday gained for a fifth session in a row as investors turned less pessimistic on the country's fiscal prospects, but Turkey's lira hit a two-week low versus the dollar after the latest twist in a government corruption scandal. Concerns about the Chinese economy, underscored by recent losses in the yuan's value, weighed on emerging market stocks in general and, in particular, on shares of companies such as Brazil's miner Vale, a large exporter of iron ore to China. The Brazilian real strengthened 0.6 percent against the dollar to 2.3312 per dollar. It has gained more than 2.5 percent over the past five sessions since the government set a more modest fiscal savings target for 2014 that many investors considered realistic. Brazil needs to convince investors that it is committed to a credible fiscal target to halt the deterioration of public finances despite spending pressures stemming from this year's re-election campaign, in which President Dilma Rousseff will seek a second term. "There has been a marked improvement in sentiment toward Brazil in the past few days. That has pushed the dollar lower against the real," said Marcos Trabbold, a currency trader with B&T brokerage in Sao Paulo. The lira, on the other hand, fell 0.4 percent to 2.2087 per dollar after voice recordings were posted on YouTube late on Monday purportedly of Turkish Prime Minister Tayyip Erdogan telling his son to dispose of large sums of money on the day news broke of a graft inquiry into his government. The incident comes at a sensitive time for Erdogan, whose AK Party officially began campaigning for March local elections Erdogan's office said the recordings were fake. As in many emerging markets, there is the concern over the impact of a tapering in the Federal Reserve's bond-buying program. For years the stimulus had supported investment in higher-yielding emerging markets. But the Fed cut back the bond buying by $10 billion in December and $10 billion again in January. "In Turkey you have the tapering worries but you also have a layer of political risk on top. In a sense what's happening today is a continuation of themes that have been running for a while," said HSBC emerging equity strategy head John Lomax. Turkey's stocks fell more than 3 percent while benchmark two-year government bond fell 0.4 point in price, pushing yields to 10.99 percent. In Ukraine, the hryvnia fell more than 3 percent to 9.4460 per dollar, as focus turned to whether the country will get aid from donors including the International Monetary Fund. A floating hryvnia was a key pre-condition the IMF sought to renew its loan package to Ukraine last year. Forward currency markets are pricing in the hryvnia trading at 10.47 in six months, a depreciation of nearly 10 percent from current levels. In Russia, nervousness over Ukraine weighed on the rouble and stocks . "There's a correction of the strongly overbought Chinese Yuan, plus uncertainty in the situation with Ukraine - these factors negatively influence the rouble," said Denis Korshilov, head of markets at Citibank Russia. CHINA CONCERNS China's yuan fell beyond the official midpoint rate for the first time since September 2012 as Beijing plans to usher in more reforms including lending curbs and a widening of the currency band to 2 percent or more from 1 percent. It last traded at 6.1243, much softer than the midpoint which was set at 6.1184. China's reforms may be announced at next week's National People's Congress meeting. "China is preparing to widen the daily trading band and they are trying to prepare the market by increasing two way volatility in the exchange rate," said Flemming Nielsen, analyst at Danske Bank in Copenhagen. "As we have seen, the two major drivers for emerging markets have been Fed tapering and slower growth in China. It is difficult to call the bottom for emerging markets as long as we can't call a bottom in China." The broader benchmark MSCI emerging index fell 0.2 percent, weighed down by China's CSI300 share index which fell 2.6 percent. The Latin American portion of the MSCI index dropped 1.2 percent as shares of miner Vale slid 2.7 percent, also pressured by concerns about the company's fourth-quarter earnings, which are due to be released on Wednesday. Key Latin American stock indexes and currencies at 1645 GMT Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 956.23 -0.23 -4.42 MSCI LatAm 2933.53 -1.24 -7.2 Brazil Bovespa 46670.57 -1.53 -9.39 Mexico IPC 39256 -1.35 -8.12 Chile IPSA 3638.23 -0.06 -1.65 Chile IGPA 17975.66 -0.12 -1.38 Argentina MerVal 5900.44 -1.37 9.45 Colombia IGBC 12330.96 -1.37 -5.66 Peru IGRA 15484.06 -0.7 -1.71 Venezuela IBC 2718.11 -0.93 -0.67 Currencies daily % YTD % change change Latest Brazil real 2.3312 0.63 1.10 Mexico peso 13.2182 0.34 -1.42 Chile peso 555.9 -0.29 -5.36 Colombia peso 2042.47 -0.02 -5.41 Peru sol 2.807 -0.07 -0.50 Argentina peso 7.8675 -0.16 -17.48 Argentina peso 11.6 0.86 -13.79
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