EMERGING MARKETS-Brazil's real drops as optimism over Rousseff remains shaky
By Bruno Federowski SAO PAULO, Oct 31 (Reuters) - Brazil's currency weakened sharply on Friday as investors reconsidered a wave of optimism that took hold in the previous session after the country's central bank unexpectedly raised the benchmark interest rate. The Brazilian real weakened more than 2 percent, just short of erasing the previous day's gains. Brazil's Bovespa stock index continued to rebound from earlier this week when it hit its lowest level since April. The reelection of President Dilma Rousseff on Sunday sent shockwaves through Brazil's financial markets and fed heavy volatility throughout the week. While most investors would have preferred her market-friendly challenger Aecio Neves, they are now focusing on whether Rousseff will begin making policy adjustments in their favor. Pro-market names being floated for the next finance minister and the central bank's more hawkish stance on inflation have fed those bets, though traders said the real's 2.4 percent gain against the dollar on Thursday was overdone. "As we had exaggerated pessimism over Rousseff's reelection, we had exaggerated optimism yesterday," said Glauber Romano, a trader with brokerage Intercam in Sao Paulo. Romano said the market will need to see an improvement in the government's fiscal numbers before having confidence in a more market-friendly economic policy. Investors got the opposite on Friday when Brazil posted its biggest monthly deficit ever, underscoring a rapid deterioration of the fiscal accounts and putting the country at risk of ending 2014 with its first annual primary deficit in nearly two decades. "That's the kind of number that makes someone who was optimistic think twice," said Celso Siqueira, head of currency at brokerage Advanced in Sao Paulo. Brazil's Bovespa stock index rose 3 percent but that was not enough to close the month in the black. Gains on Friday were driven by shares of state-run oil company Petroleo Brasileiro SA , known as Petrobras, which rose nearly 5 percent. Traders are watching for a potential increase in government-controlled fuel prices within the next few days, which would support the company's bottom line. Telecommunications firms TIM Participacoes SA and Grupo Oi SA gained 12.8 and 15.7 percent, respectively. Brazilian newspaper Folha de S. Paulo reported on Friday that Mexico's America Movil SAB, Spain's Telefonica SA and Grupo Oi agreed to bid for TIM to then to break it up among themselves. Mexico's IPC stock index rallied for the fifth straight session, with shares of America Movil up 1.2 percent. Shares in Mexican retailer Elektra extended a rally for a seventh straight session and surged 12 percent on Friday after the company settled a legal dispute over its stock's weighting in the IPC index earlier in the week. Mexico's peso was little changed. Chilean markets were closed for a local holiday. Key Latin American stock indexes and currencies at 1735 GMT: Stock indexes daily % YTD % change change Latest MSCI Emerging Markets 1013.71 0.61 0.48 MSCI LatAm 3,131.31 0.46 -2.62 Brazil Bovespa 53,783.54 2.76 4.42 Mexico IPC 45,006.44 0.91 5.33 Chile IPSA 3,850.97 - 4.10 Chile IGPA 18,842.72 0.89 3.38 Argentina MerVal 10,845.10 2.9 101.17 Colombia IGBC 13,236.30 0.28 1.26 Peru IGRA 15,698.02 -0.83 -0.35 Venezuela IBC 2,923.14 0.16 6.82 Currencies daily % YTD % change change Latest Brazil real 2.4559 -1.71 -4.04 Mexico peso 13.4600 -0.10 -3.19 Chile peso 577.0000 - -8.82 Colombia peso 2057.5000 -0.35 -6.10 Peru sol 2.9240 n/a -4.48 Argentina peso 8.5000 0.03 -23.62 (interbank) Argentina peso 14.1900 0.99 -29.53 (parallel) (Writing by Asher Levine in Rio de Janeiro; Editing by James Dalgleish)
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