July 12, 2017 / 7:22 PM / a year ago

EMERGING MARKETS-Brazil markets extend gains after Lula found guilty of corruption

    By Bruno Federowski
    SAO PAULO, July 12 (Reuters) - Brazil's stocks and currency
further strengthened on Wednesday after former President Luiz
Inácio Lula da Silva was convicted of corruption charges,
reducing trader fears that he could return to office next year
and challenge the pro-business agenda of incumbent President
Michel Temer.
    Lula, who was sentenced to nine and a half years in prison, 
would be barred from office if his guilty verdict is upheld by
an appeals court, which is expected to take at least eight
months to rule.
    Many traders fear Lula, a leftist who has consistently led
voting polls for the 2018 presidential elections, could overturn
Temer's efforts to curb growth of public debt and implement
sweeping structural reforms.
    "This makes traders hopeful that the government's
market-friendly platform may extend beyond 2018," Renascença
brokerage trader Thiago Castro said. "Still, there's a long way
to go before we see a ruling by the appeals court."
    The Brazilian real gained as much as 1.5 percent to
its strongest since May 17, when news broke of a corruption
scandal threatening to derail Temer's agenda drove the currency
sharply lower.
    The benchmark Bovespa stock index rose to a session
high, supported by a rally in shares of state-controlled oil
company Petróleo Brasileiro SA.
    Brazilian markets traded higher throughout the day after an
overhaul of the country's labor laws won Senate approval by a
wider margin than expected, suggesting lawmaker support for
Temer's reform agenda remained strong despite the corruption
    Many investors see the reform, part of a package of
structural reforms that also includes measures to streamline
country's bloated pension system, as crucial to Brazil's
long-term growth.  
    Other Latin American markets advanced after Federal Reserve
Chair Janet Yellen indicated that the U.S. central bank may
raise interest rates less than previously suggested.
    Yellen said in testimony to the U.S. Congress that interest
rates "would not have to rise all that much further" to reach
what the Fed considers a neutral rate. A slower pace of rate
hikes would increase the allure of high-yielding emerging market
    The Mexican peso surged to a more than one-year
high, bolstered by growing confidence that U.S. President Donald
Trump will not pull out of NAFTA, as well as a major oil
    Expectations that Trump will not shred the North American
Free Trade Agreement have fed demand for the peso and helped
make it the top-performing emerging-markets currency this year,
with a 17 percent gain. On Wednesday it was 3 percent stronger
than just before Trump won the election.

    Key Latin American stock indexes and currencies at 1840 GMT:
 Stock indexes                             daily %   YTD %
                                            change  change
 MSCI Emerging Markets            1032.03     1.36   18.08
 MSCI LatAm                       2669.17     2.08   11.71
 Brazil Bovespa                  64850.74      1.6    7.68
 Mexico S&P/BVM IPC              50655.20     0.29   10.98
 Chile IPSA                       4953.94     1.21   19.33
 Chile IGPA                      24719.97     1.06   19.22
 Argentina MerVal                22193.72      0.3   31.19
 Colombia IGBC                   11079.73     0.78    9.40
 Venezuela IBC                  124511.78     -1.1  292.72
 Currencies                                daily %   YTD %
                                            change  change
 Brazil real                       3.2111     1.26    1.19
 Mexico peso                      17.7900     0.67   16.60
 Chile peso                         662.9     0.54    1.18
 Colombia peso                     3047.1     0.90   -1.50
 Peru sol                           3.251     0.15    5.01
 Argentina peso (interbank)       16.9450     0.37   -6.31
 Argentina peso (parallel)          17.45    -0.17   -3.61
 (Reporting by Bruno Federowski; Additional reporting by Noel
Randewich; Editing by Jonathan Oatis and Steve Orlofsky)
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