(Updates with trading in Latin America)
By Karin Strohecker and Walter Brandimarte
LONDON/RIO DE JANEIRO, March 10 (Reuters) - Emerging market currencies sold off on Tuesday as a combination of U.S. interest rate fears, Chinese data and Greece concerns drove the Mexican peso to its weakest point ever and pushed several other currencies to multi-year lows.
Currencies from countries with more fragile economies and political problems suffered the most, with the Turkish lira trading near a record low and the Brazilian real sliding for a seventh straight session.
“We are seeing the largest weaknesses in some of the familiar emerging markets like South Africa, Turkey and Brazil,” said William Jackson, senior emerging markets economist at Capital Economics. “Politics seems to be playing a role.”
Against a basket of key currencies, the dollar was near its highest in almost 11 years as investors brace for higher U.S. rates that may reduce the allure of higher-yielding assets in emerging markets.
Renewed concern about Greece’s debt talks with euro zone partners and China’s inflation spike, which called into question Beijing’s strategy to support growth, also weighed on emerging markets in general.
Protracted periods of dollar strength have been rare during the 40 year-era of floating exchange rates, but have tended to trigger problems in emerging markets when they have happened. Most notably, in 1997/98, many Asian countries and Russia were forced to dramatically devalue their currencies, with some defaulting on debt.
Because some emerging market governments and companies rely disproportionately on dollar borrowing, greenback appreciation makes repaying their loans more expensive, sometimes sowing seeds of default and contagion.
On Tuesday, the Brazilian real dropped to its weakest level in over a decade in a volatile session, while the Mexican peso traded past 15.60 per dollar, an all-time low. South Africa’s rand plunged to a 13-year low against the dollar and Turkey’s lira traded within sight of a record low it hit last Friday.
Investors in Brazil are fretting over a corruption scandal at state-controlled oil company Petrobras and the government’s ability to consolidate public finances. In South Africa, chronic electricity shortages, labor unrest and a gaping current account deficit have cast a cloud.
Doubts meanwhile prevail over the independence of Turkey’s central bank, which has come under intense pressure from President Tayyip Erdogan to cut rates. According to sources, Prime Minister Ahmet Davutoglu will meet Central Bank Governor Erdem Basci and nine cabinet ministers on Tuesday to discuss the lira’s recent fall.
And there could be more weakness ahead, said Jackson.
“If you’re looking at the risk of a crisis, the key thing to look at is what kind of vulnerabilities exist in these economies and how exposed they are particularly to dollar debt,” he added.
Currencies in Asia followed the pattern, with South Korea’s won skidding to fresh 1-1/2 year lows as offshore funds sold their positions while the Singapore dollar and Malaysian ringgit hit multi-year troughs.
Eastern European currencies were weaker against euro across the board.
The currency weakness spread to other assets, with emerging market stocks trading 1.4 percent lower, chalking up losses for the eighth consecutive session.
For GRAPHIC on emerging market FX performance 2015, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2015, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2015, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2015, see link.reuters.com/zyh97s (Additional reporting by Chis Vellacott in London and Walter Brandimarte in Rio de Janeiro; Editing by Catherine Evans and W Simon)