July 12, 2017 / 9:07 PM / a year ago

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

 (Adds closing prices)
    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, which
reduced 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 9-1/2 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 worry that Lula, a leftist who has consistently
led voting polls for the 2018 presidential elections, could
overturn Temer's efforts to curb public debt growth 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 of a corruption scandal
threatening to derail Temer's agenda drove the currency sharply
    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 overhaul, part of a package of
structural reforms that also includes measures to streamline the
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 traders had expected.
    Yellen said in testimony to the U.S. Congress that rates
"would not have to rise all that much further" to reach what the
Fed considers a neutral rate. A slower pace of hikes and lower
rates 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 Mexican 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.
    Latin American stock indexes and currencies at 20:47 GMT:
 Stock indexes                                 daily %     YTD %
                                      Latest    change    change
 MSCI Emerging Markets               1,029.90    +1.15    +19.44
 MSCI LatAm                          2,661.33    +1.78    +13.70
 Brazil Bovespa                     64,835.55    +1.57     +7.65
 Mexico S&P/BVM IPC                 50,809.77    +0.59    +11.32
 Chile IPSA                          4,956.95    +1.27    +19.40
 Chile IGPA                         24,734.33    +1.12    +19.29
 Argentina MerVal                   22,262.64    +0.61    +31.59
 Colombia IGBC                      11,121.66    +1.16     +9.81
 Venezuela IBC                     124,511.78    -1.10   +292.72
 Currencies                                    daily %     YTD %
                                                change    change
 Brazil real                            3.210    -0.11     +1.21
 Mexico peso                           17.788     0.68    +16.62
 Chile peso                           662.850    +0.55     +1.18
 Colombia peso                      3,048.150    +0.86     -1.53
 Peru sol                               3.251    +0.15     +5.01
 Argentina peso (interbank)            16.945    +0.37     -6.31
 Argentina peso (parallel)             17.450    -0.17     -3.61
 (Reporting by Bruno Federowski; Additional reporting by Noel
Randewich; Editing by Jonathan Oatis and Steve Orlofsky)
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