EMERGING MARKETS-Brazil real, stocks eye biggest weekly gain since 2008 on Lula's detention

viernes 4 de marzo de 2016 14:55 GYT

By Walker Simon and Bruno Federowski
    SAO PAULO, March 4 (Reuters) - Brazil's stocks and currency
looked set to end the week with their biggest gain in almost
eight years after police detained former president Luiz Inacio
Lula da Silva for questioning on Friday in an investigation of a
bribery and money laundering scheme.
    Police said they had evidence that Lula received illicit
benefits from kickbacks at state-controlled oil company
Petrobras  in the form of payments and luxury real
    The evidence against Lula also brings the operation closer
to his protegee and successor, President Dilma Rousseff, who is
fighting off impeachment and struggling to pull the country out
of its worst economic downturn in decades.
    "Maybe this is helping Brazilian assets because of the idea
that it will speed up the impeachment process (of Rousseff),"
said Guillaume Tresca, an emerging markets senior strategist at
Credit Agricole in Paris. "That is a very long process, but it
could trigger political change, and that is the only hope right
    Analysts from political risk consultancy Eurasia Group said
the news made it more likely than not that Rousseff would not
finish her term.
    For months, Brazilian assets have often rallied when
prospects of a change in government appeared to increase.
Businesses had decried Rousseff's intervention in the economy,
but since her second term began in January, she has rolled back
some of the earlier initiatives.
    Lula's detention is part of a sweeping two-year
investigation that has ensnared powerful lawmakers and business
executives and was sparked by probes into kickbacks to
politicians from Petroleo Brasileiro SA, as Petrobras is
formally called.
    The benchmark Bovespa benchmark stock index and the
Brazilian real both headed toward their biggest weekly
gains since October 2008. 
    Petrobras shares jumped for the fifth straight day and
looked set to end their best week in more than 12 years.
    In international markets, the cost of insuring the country's
debt fell to a three-month low, and bonds rallied. 
    Indications that the central bank could ease its support for
the real drove the currency off its session high of 3.65 per
U.S. dollar.
    The bank sold only 8,000 of the 9,600 currency swaps it has
been offering daily, a sign that it could allow about 15 percent
of the $10 billion in contracts maturing in April to expire. It
has fully rolled over every maturity since August.
    "We view this as an important signal by (the central bank)
as it shows that the monetary authority might not allow a sharp
nominal appreciation of the (real) beyond about 3.70," BNP
Paribas strategists wrote in a client note.
    The bank manages about $110 billion in outstanding currency
swaps, which offer investors protection from sharp devaluations
in the real. 
    The derivatives cost the central bank around 90 billion
reais ($24 billion) last year, drawing sharp criticism from some
analysts. When reported in local currency terms, however, the
losses were more than offset by higher foreign reserves due to a
weaker real.
    "This could be an opportunity for the central bank to reduce
the stock of currency swaps," said Francisco Carvalho, head
trader at BGC Liquidez brokerage in São Paulo.
    Key Latin American stock indexes and currencies at 1755 GMT:
 Stock indexes                                daily %    YTD %
                                               change   change
 MSCI Emerging Markets               793.93      1.76    -1.76
 MSCI LatAm                         2051.43      4.57     7.21
 Brazil Bovespa                    49209.71      4.27    13.52
 Mexico IPC                        45252.85      1.14     5.29
 Chile IPSA                         3839.46      0.58     4.33
 Chile IGPA                        18739.94      0.17     3.24
 Argentina MerVal                  13415.95      0.66    14.91
 Colombia IGBC                      9637.84      0.61    12.76
 Venezuela IBC                     16318.24      0.31    11.86
 Currencies                                   daily %    YTD %
                                               change   change
 Brazil real                         3.7241      2.07     5.99
 Mexico peso                        17.7715      0.81    -3.05
 Chile peso                           680.2      1.00     4.34
 Colombia peso                      3157.75      1.12     0.37
 Peru sol                            3.4431      0.55    -0.85
 Argentina peso (interbank)         15.1700      0.53   -14.42
 Argentina peso (parallel)            15.67      0.26    -8.93

 (Reporting by Walker Simon and Bruno Federowski; Editing by
Lisa Von Ahn)