November 17, 2016 / 2:42 PM / 2 years ago

EMERGING MARKETS-Brazil real, Mexico peso pare gains on Fed's Yellen remarks

By Bruno Federowski
    SAO PAULO, Nov 17 (Reuters) - The Brazilian real and the
Mexican peso pared gains on Thursday after Federal Reserve Chair
Janet Yellen said the U.S. central bank could raise rates
"relatively soon," cementing bets on a December hike.
    Those were her first public remarks since the election of
Donald Trump as U.S. President this month. His pledges of heavy
spending and lower taxes have raised concerns that price
pressures could force the Fed to increase rates more quickly
than previously expected.
    Higher U.S. rates would reduce the allure of high-yielding
emerging market assets, possibly triggering outflows.
    Yellen will deliver the prepared remarks to Congress's Joint
Economic Committee at 10 a.m. (1500 GMT) and then answer
questions from lawmakers. 
    The Brazilian real  weakened as much as 0.2 percent
to 3.4193 after Yellen's remarks but later reversed its losses
to trade 0.3 percent higher. The currency reached 3.3860 at the
session high.
    The real has bounced back after dropping sharply last week
as the country's central bank and National Treasury stepped into
the market to curb volatility. 
    Brazil's benchmark Bovespa stock index, however,
fell 0.8 percent, as the prospect of higher U.S. rates offset a
rise in shares of state-controlled oil company Petróleo
Brasileiro SA.
    Petrobras, as the company is known, is close to announcing
the sale of its liquefied petroleum gas distribution unit
Liquigás Distribuidora SA to industrial group Ultrapar
Participações SA, a source close to the matter told
    The Mexican peso was nearly flat percent as traders awaited
an interest rate decision by the Banco de Mexico, known as
Banxico, due later in the day.
    "Banxico's actions will likely be tailored to anchor
expectations, not to anchor the peso, which is impossible to
do," Nomura Securities strategist Benito Berber wrote in an
email to clients.
    "But what is the most efficient way to do it? Perhaps hiking
more than last time while leaving the door open for more hikes
in the future."
    Berber expects the Mexican central bank to increase rates by
75 basis points on Thursday, followed by an additional 75 basis
point increase in December.
    Key Latin American stock indexes and currencies at 1420 GMT:
 Stock indexes                                daily %    YTD %
                                               change   change
 MSCI Emerging Markets                847.24     0.01     6.68
 MSCI LatAm                          2284.63    -0.14    25.03
 Brazil Bovespa                     60344.95    -0.68    39.20
 Chile IPSA                          4185.62     0.07    13.73
 Chile IGPA                         20932.46     0.08    15.32
 Venezuela IBC                      27152.24     2.98    86.12
 Currencies                                   daily %    YTD %
                                               change   change
 Brazil real                          3.4083     0.32    15.81
 Mexico peso                         20.2250    -0.04   -14.81
 Chile peso                            673.3     0.22     5.41
 Colombia peso                       3117.08     0.35     1.67
 Peru sol                              3.404     0.00     0.29
 Argentina peso (interbank)          15.4500     0.36   -15.97
 Argentina peso (parallel)              15.6     0.38    -8.53

 (Reporting by Bruno Federowski; Editing by Daniel Flynn and
Meredith Mazzilli)
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