EMERGING MARKETS-Brazil markets swing on S&P warning; real touches 3.43/USD
SAO PAULO, July 28 (Reuters) - Brazil's financial markets swung widely on Tuesday after Standard & Poor's warned that the country could lose its coveted investment-grade rating in the coming year. Brazil's currency, the real started the day lower against the dollar, crossing the 3.40 level for the first time in over 12 years. S&P in the early afternoon affirmed Brazil's credit rating of BBB-minus, the agency's lowest investment grade rating, and revised the outlook on that rating to negative from stable, signaling a downgrade is possible over the next 12 to 18 months. S&P's announcement drove the currency as low as 3.43 per dollar before it recovered losses shortly thereafter to trade at the 3.40 level. "Most of the market was expecting something like this," said Pedro Tuesta, an economist with 4Cast in Washington D.C. "The only surprise was that it was S&P and not Moody's." Other analysts corroborated that view, saying the initial move was a knee-jerk reaction. Most remain on the lookout for a possible downgrade of Brazil to junk by Moody's Investor Service. The real has lost nearly 22 percent against the dollar this year as investors fret over mounting inflation, economic recession, weaker demand for commodities and political turbulence. Equities saw smaller moves. Brazil's Bovespa stock index remained in positive territory throughout the session, supported by preferred shares of mining giant Vale SA , which gained about 6 percent on higher prices for iron ore .IO62-CNI=SI. Traders said the Bovespa was also rising on bargain-hunting, snapping the index's seven-day 8.2 percent slump. Yields on Brazilian interest rate futures <0#DIJ:> rose sharply on the long end of the curve after the S&P announcement. "The market is now operating at price levels corresponding with a downgrade to junk," said Bruno Gonçalves, an analyst at the Alpes brokerage in Sao Paulo. Financial markets were little-changed across the rest of Latin America. Key Latin American stock indexes and currencies at 1805 GMT: Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 892.69 0.01 -6.66 MSCI LatAm 2250.94 0.46 -17.86 Brazil Bovespa 49400.9056 1.37 -1.21 2 Mexico IPC 44114.57 0.92 2.25 Chile IPSA 3796.8 0.09 -1.41 Chile IGPA 18522.25 0.14 -1.84 Argentina MerVal 10918.26 3.11 27.27 Colombia IGBC 9903.57 0.63 -14.88 Venezuela IBC 15537.75 3.28 302.66 Currencies daily % YTD % change change Latest Brazil real 3.3850 -0.68 -21.49 Mexico peso 16.279 0.07 -9.43 Chile peso 666 -0.04 -8.95 Colombia peso 2855 0.12 -16.36 Peru sol 3.184 0.00 -6.44 Argentina peso 9.1750 -0.03 -6.81 (interbank) Argentina peso 14.9 -1.68 -6.04 (parallel) (Reporting by Bruno Federowski and Asher Levine; Editing by Cynthia Osterman)
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