EMERGING MARKETS-U.S. interest rate outlook sinks Latam markets
SAO PAULO, May 22 (Reuters) - Latin American currencies and stocks weakened across the board on Friday, after U.S. inflation data stoked investors' expectations that interest rates in the world's largest economy will be hiked sooner rather than later. Nearly every currency in the region weakened against the dollar, while the MSCI Latin American stock index dropped to its lowest level in a month. The U.S. Consumer Price Index, stripped of volatile food and energy components, notched a 0.3 percent core rise in April according to data released Friday, with prices increasing across a broad spectrum of items. Federal Reserve Chair Janet Yellen is set to discuss the prospects for the U.S. economy later on Friday. Interviews with current and former officials at the U.S. central bank suggest that policymakers do not need much more evidence that the economy can withstand a modest initial rate rise by September. Expectations of higher U.S. interest rates tend to weaken demand for higher-risk assets, such as Latin American securities. The Brazilian currency, the real , touched its weakest level in ten days, with traders awaiting the formal announcement of the government's expected 70 billion reais ($23 billion) budget freeze later in the session. Brazil's improved fiscal management makes a sovereign credit downgrade less likely and boosts the outlook for the real, though political wrangling threatens to limit the scope of that initiative. Data on Friday showed Brazil's annual inflation rate remained at an 11-year high in mid-May, putting additional pressure on the central bank to hike interest rates. Yields on Brazilian interest rate futures <0#DIJ:>, meanwhile, climbed across the shorter end of the yield curve. Chile's peso weakened, dragged down by lower prices for copper, the country's main export. Mexico's peso also fell. In equities markets, Brazil's Bovespa stock index fell for the fourth session in five, contributing to a decline of about 4.9 percent on the week - the biggest weekly drop in the index since mid-December. Most of that decline was caused by bank shares, which sank due to recently-announced changes in income tax rules. Key Latin American stock indexes and currencies at 1531 GMT: Stock indexes Latest Daily YTD pct pct change change MSCI Emerging Markets 1,037.22 0.44 7.99 MSCI LatAm 2,611.58 -1.6 -2.7 Brazil Bovespa 54,312.35 -1.45 8.61 Mexico IPC 45,016.52 -0.18 4.34 Chile IPSA 4,050.78 -0.18 5.19 Chile IGPA 19,670.93 -0.15 4.24 Argentina MerVal 11,483.069 -1.85 33.85 Colombia IGBC 10,587.4 -0.02 -9.00 Peru IGRA - - - Venezuela IBC 7,339.07 10.79 90.19 Currencies Latest Daily YTD pct pct change change Brazil real 3.0657 -0.77 -13.32 Mexico peso 15.2873 -0.45 -3.55 Chile peso 608.2 -0.61 -0.30 Colombia peso 2,499.5 -0.75 -4.46 Peru sol 3.1471 -0.13 -5.34 Argentina peso 8.9675 0.00 -4.66 (interbank) Argentina peso 12.57 0.56 11.38 (parallel) (Reporting by Asher Levine, editing by G Crosse)
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