EMERGING MARKETS-Latam currencies sink on strong U.S. service sector data
SAO PAULO, Aug 5 (Reuters) - Latin American currencies dropped on Wednesday on expectations for a September increase in U.S. interest rates after strong service sector data offset weaker jobs numbers in the world's largest economy. Equities were mostly higher as mining company Vale SA helped the Bovespa stock index nearly erase losses from the previous two sessions. U.S. private job growth slowed sharply in July, according to the ADP National Employment Report released early on Wednesday. Later in the session, data from the Institute for Supply Management showed the pace of growth in the U.S. service sector accelerated in July to its fastest in a decade, reinforcing expectations that the U.S. Federal Reserve would hike interest rates in September. "There's no doubt that the Fed won't wait to hike rates," said Reginaldo Galhardo, head of currency trading at brokerage Treviso in Sao Paulo. Higher U.S. interest rates are expected to draw funds away from riskier emerging markets such as Colombia, Mexico and Brazil. Brazil's real weakened to 3.4999 per dollar but failed to break the 3.50 psychological barrier. Still, the currency is at its weakest since March 2003 because of economic deterioration, lower commodities prices and the U.S. rate outlook. Political turbulence is also sinking the real, with traders monitoring news of a massive corruption investigation engulfing state-run oil producer Petroleo Brasileiro SA, which is known as Petrobras. The deepening investigation could make it more difficult for the government to achieve the necessary political backing to reach its fiscal goals and get the shrinking economy back on track, traders said. Other currencies in the region fell on declining prices for commodities. Lower oil prices weighed on Colombia's peso, while a drop in copper prices dragged on Chile's peso. "Between (U.S. rate hikes) and lower commodity prices, emerging market currencies will have trouble finding much traction, and so we remain bearish," BBH analysts wrote on Wednesday. In equities markets, Brazil's Bovespa index gained about 1 percent, led by a 4 percent gain in Vale shares after the company slightly reduced the size of its 2015 investment plan. Vale shares also climbed on a 2.5 percent rise in the price of iron ore .IO62-CNI=SI, its main product. Key Latin American stock indexes and currencies at 1527 GMT: Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 891.87 -0.14 -6.61 MSCI LatAm 2252.46 -0.44 -17.06 Brazil Bovespa 50547.2469 0.98 1.08 4 Mexico IPC 45169.9 -0.02 4.69 Chile IPSA 3867.14 0.44 0.42 Chile IGPA 18827.47 0.41 -0.23 Argentina MerVal 10917.909 1.01 27.26 Colombia IGBC 9921.43 0.14 -14.73 Venezuela IBC 15429.68 0.95 299.86 Currencies daily % YTD % change change Latest Brazil real 3.4890 -0.77 -23.83 Mexico peso 16.361 -0.38 -9.88 Chile peso 683.1 -0.71 -11.23 Colombia peso 2948 -0.85 -19.00 Peru sol 3.2011 -0.37 -6.94 Argentina peso 9.2025 -0.03 -7.09 (interbank) Argentina peso 15 -0.67 -6.67 (parallel) (Reporting by Bruno Federowski and Asher Levine; Editing by Lisa Von Ahn)
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