EMERGING MARKETS-Brazil currency sinks despite tax change, intervention eyed
SAO PAULO, June 4 (Reuters) - Brazil's real weakened to its lowest level in over two months on Wednesday, despite the removal of a tax that should encourage dollar inflows, as investors remained cautious over the outlook for future central bank interventions in the currency market. Other Latin American currencies were weaker or little changed against the dollar, which rose globally on the back of higher Treasury rates and a stronger U.S. ISM services sector reading. The real lost ground for a fourth straight session, falling to 2.28 per dollar, also on the back of the U.S. data. "The ISM services data came in better than expected and caused ... the real and other emerging currencies to weaken," said Luciano Rostagno, chief strategist at Banco Mizuho in Sao Paulo. Earlier on Wednesday, Brazil's government announced the scrapping of a 6 percent financial tax, known as the IOF, on some short-term foreign loans, a move that Finance Minister Guido Mantega said would help normalize the currency market. The real has been volatile in recent sessions after the central bank tried to slow down the pace at which it rolls over expiring currency swaps, used by investors who wish to hedge themselves against a possible weakening of the currency. For a second straight day on Wednesday, the bank rolled over 10,000 currency swaps - derivatives that let investors hedge against currency losses - after a sharp drop in the currency on Monday following its decision to roll over only half that amount. "The dollar is rising abroad and there are some doubts about interventions," said a trader who declined to be named because he is not authorized to speak to the press. "Maybe with this IOF measure, if there are more inflows from here on, the central bank could reduce its interventions. When you have uncertainty ahead, people prefer to stay cautious." Forecasts for the real point to a gradual weakening of the Brazilian currency to 2.47 per dollar in 12 months, according to Reuters' monthly survey of 31 strategists. Elsewhere in Latin America, Chile's peso declined by the most in two weeks, driven by a drop of over 1 percent in the price of copper, the country's main export. Stock markets tracked downward across the region, with the MSCI Latin American stock index retracing the previous two sessions' gains. Brazil's benchmark Bovespa stock index dipped slightly, weighed down by data showing the country's industrial sector shrank for a second straight month in April. Mexico's IPC index returned the previous session's gains, driven by a 0.7 percent fall in telecommunications firm America Movil. Key Latin American stock indexes and currencies at 1634 GMT: Stock indexes Latest Daily YTD pct pct change change MSCI Emerging Markets 1,031.09 -0.47 3.32 MSCI LatAm 3,234.4 -1.01 2.08 Brazil Bovespa 51,801.75 -0.44 0.57 Mexico IPC 41,896.65 -0.54 -1.94 Chile IPSA 3,908.74 -0.14 5.66 Chile IGPA 19,086.32 -0.05 4.71 Argentina MerVal 7,684.96 -0.3 42.55 Colombia IGBC 13,738.14 -0.39 5.10 Peru IGRA 15,817.07 0.4 0.40 Venezuela IBC 2,163.5 0 -20.94 Currencies Daily YTD pct pct change Latest change Brazil real 2.2846 -0.30 3.16 Mexico peso 12.9438 -0.04 0.67 Chile peso 552.7 -0.51 -4.81 Colombia peso 1,898.49 -0.06 1.77 Peru sol 2.785 0.14 0.29 Argentina peso (interbank) 8.1075 -0.15 -19.92 Argentina peso (parallel) 11.58 0.43 -13.64 (Reporting by Tiago Pariz and Asher Levine; editing by G Crosse)
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