(Updates prices, adds details on Latin America, quote)
By Asher Levine and Sujata Rao
RIO DE JANEIRO/LONDON, Feb 14 (Reuters) - Latin American stocks were set to deliver their best weekly performance in three months on Friday, boosted by strong earnings from key companies and resilient global risk appetite despite mixed economic data.
MSCI’s Latin American stock index rose nearly two percent, helping the benchmark emerging equity index post its biggest daily gain this week.
While U.S. economic data came in mostly weaker than expected in recent days, including Friday’s industrial production data, investors largely shrugged it off citing the impact of bad weather. Instead, traders were encouraged by strong trade data from China earlier in the week and signals from new U.S. Federal Reserve chief Janet Yellen that current monetary policy would remain on course.
“There is a little more risk appetite but I think it’s momentary,” cautioned Paulo Petrassi, an economist with Leme Investimentos in Florianopolis, Brazil, citing lingering risks of weaker economic growth in the U.S. and Brazil.
Data showed Brazilian economic activity fell sharply in December, raising the specter that Latin America’s largest economy may have slipped into recession. Yields on Brazilian interest rate futures dropped on expectations the central bank would slow its monetary tightening cycle in order to support economic growth.
Brazil’s real firmed, however, after central bank president Alexandre Tombini said Brazil is prepared to use international reserves if needed to curb volatility in the foreign exchange market.
“The real is still being pressured by Tombini’s words yesterday,” said Marco Trabbold, a trader with B&T in Sao Paulo.
Elsewhere in Latin America, Mexico’s peso strengthened after the central bank said it expects a recent spike in prices to abate in coming months.
Peru’s sol also strengthened slightly, the day after the central bank held its benchmark interest rate steady for the third straight month, saying economic growth would likely pick up in the first quarter.
Argentine bonds jumped after the government unveiled a new inflation index that some investors welcomed as more credible official economic data. Peso-denominated, inflation-linked bonds are seen as most likely to benefit from the new methodology.
In Europe, Russia’s rouble briefly fell to a record low against the euro and the dollar-euro basket , before paring losses.
The Russian central bank held its key policy rate as expected, but warned that it may tighten policy if a weakening rouble causes inflation to deviate from its mid-term targets.
“After the central bank meeting the rouble is strengthening a bit but the market is reluctant to go long the rouble. We could see it stuck a bit,” said Sebastien Barbe, head of emerging market strategy at Credit Agricole in Paris.
Central banks in emerging markets are under growing pressure to raise interest rates, supporting their currencies and heading off inflation caused by weaker exchange rates.
Barbe said investors are convinced the central bank will defend the rouble from further weakness.
The Indonesian rupiah rose to 11-week highs after data showed a reduction in the current account deficit that has been alarming investors. The currency was headed for its biggest weekly gain since October.
India also posted better inflation numbers, boosting local bonds and the rupee, while the South African rand rose 1.44 percent. The Turkish lira was also firmer.
Many see the current stabilisation in emerging markets as temporary, however, with currency weakness resuming as the Federal Reserve withdraws its monetary stimulus further.
“This is very much a currency story. Currencies are key driver of emerging markets because it’s a key source of return,” said Russ Koesterich, chief investment strategist for BlackRock.
“Discussions on emerging markets often begin and end with currencies. For that we will see more vulnerability ahead.”
For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t
For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s
For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s
For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see ) (Additional reporting by Bruno Federowski and Natsuko Waki; Editing by Diane Craft)