EMERGING MARKETS-Brazil's real firms despite credit outlook lowering by Fitch
SAO PAULO, April 9 (Reuters) - The Brazilian real firmed on Thursday in a volatile session after Fitch revised Brazil's sovereign rating outlook to "negative," while Mexico's peso weakened its most in almost a month on expectations for higher U.S. interest rates. The region's equities markets continued to rally, with the MSCI Latin American stock index up for the seventh session in eight. The real reversed early gains after Fitch Ratings lowered Brazil's long-term foreign and local currency issuer default ratings outlook to "negative" from "stable," citing the country's continued economic underperformance and an increase in government debt. The currency bounced back later in the session, however, to trade 0.32 percent stronger on the day to the dollar as traders weighed the possibility that closely-watched fiscal adjustments, needed to stave off a loss of Brazil's investment grade, would make it cleanly through Congress. "We still have a more benign outlook, with the market believing that the government will find it easier to get the fiscal measures approved," said economist Paulo Petrassi of Leme Investimentos in Florianopolis, Brazil. Elsewhere in Latin America, currencies were trading mostly weaker against the dollar after encouraging labor market data in the U.S. upped expectations that interest rates in the world's largest economy could rise sooner rather than later. The Mexican peso led losses in the region, falling about 1.1 percent and crossing back over the 15-per-dollar threshold. Mexico's peso last month weakened to historic lows against the dollar, hammered by a slump in oil prices and fears that an imminent U.S. rate hike may spur a capital flight from emerging markets. "We cannot discard the possibility that prices will increase more than expected in response to the weaker (peso) in the coming months," BNP Paribas economist Nader Nazmi wrote in a client report on Thursday, adding that little inflation pass-through has been seen so far from the currency's drop. Among the five most-traded currencies in Latin America, only the Mexican peso is expected to strengthen against the dollar over the next 12 months, according to a Reuters poll on Thursday. The rest of the region, which suffers from a deep and apparently long-lasting decline in the price of its commodity exports, will probably maintain steady exchange rates at best, according to the poll of about 100 strategists and economists. In equities markets, Brazil's benchmark Bovespa index reversed early gains as shares of banks plunged on concern the government might be preparing steps to raise taxation of commercial banking activities to help plug a swelling budget deficit. Key Latin American stock indexes and currencies at 1710 GMT: Stock indexes Latest Daily YTD pct pct change change MSCI Emerging Markets 1,027.48 0.63 6.77 MSCI LatAm 2,619.55 0.27 -4.22 Brazil Bovespa 53,422.29 -0.45 6.83 Mexico IPC 45,131 0.33 4.60 Chile IPSA 4,007.5 0.39 4.06 Chile IGPA 19,471.91 0.38 3.19 Argentina MerVal 11,459.31 1.63 33.57 Colombia IGBC 10,255.8 0.19 -11.85 Peru IGRA 12,778.88 -0.18 -13.62 Venezuela IBC 5,386.97 -0.06 39.60 Currencies Latest Daily YTD pct pct change change Brazil real 3.0450 0.32 -12.73 Mexico peso 15.0777 -1.13 -2.21 Chile peso 615.8 -0.62 -1.53 Colombia peso 2,495.99 -0.19 -4.33 Peru sol 3.1141 -0.39 -4.34 Argentina peso 8.8425 0.00 -3.31 (interbank) Argentina peso 12.34 0.89 13.45 (parallel) (Reporting by Asher Levine and Flavia Bohone; Editing by Alan Crosby)
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