May 3, 2016 / 10:12 PM / 2 years ago

EMERGING MARKETS-Mexico peso, Latam markets plunge on oil slump, Fed comments

(Recasts with Fed comments, oil price fall; updates prices)
    BRASILIA, May 3 (Reuters) - Comments from U.S. Federal
Reserve officials that raised the chances of higher interest
rates this year weakened Latin American currencies on Tuesday,
with the Mexican peso recording its biggest daily plunge in more
than four years. 
    The peso plunged 2.46 percent to 17.63 per dollar,
its biggest drop since November 2011, as Fed officials raised
the specter of an imminent U.S. central bank hike. Emerging
markets fear higher U.S. rates could lead to an exodus of
investors seeking less-risky assets with improving yields. 
    San Francisco Fed President John Williams said he could
support an interest rate hike in June given continued progress
on the economy, while Atlanta Fed President Dennis Lockhart said
two rate hikes this year were certainly possible. 
    Weak economic data in China and Europe also re-ignited
worries about global growth, while oil prices dropped for a
second day. Mexico relies on oil revenue from state energy giant
Pemex to fund about a fifth of its federal budget. 
    Currencies of other oil-producers across the region were
hit, with Colombia's peso sliding 2.86 percent to 2.914
per dollar, its worst slump since December, and Brazil's real
 falling more than 2 percent to 3.55 per greenback.
    Losses in the Brazilian real were intensified by
ongoing central bank intervention. The bank offered reverse
swaps for a third consecutive day on Tuesday as part of its
broader efforts to curb currency gains.
    "All emerging currencies are weakening today. The central
bank (intervention) is just the icing on the cake," said Pedro
Tuesta, an economist with research firm 4Cast.
    Activity at China's factories shrank for the 14th straight
month in April as demand stagnated, a private survey showed.
China is a major buyer of Latin America's raw materials, from
oil to Brazilian iron ore and Chilean copper. 
    Tuesday's drop in Latin American markets contrasted with a
strong first quarter, in which equities and currencies gained
steadily on signs of renewed central bank efforts in the United
States, Japan and Europe to boost economic growth.
    Key Latin American stock indexes and currencies at 2124 GMT:
 Stock indexes               Latest          Daily   YTD pct
                                               pct    change
 MSCI Emerging Markets            821.09     -1.73      3.39
 MSCI LatAm                     2,188.29     -3.08     19.59
 Brazil Bovespa                52,260.19     -2.43     20.55
 Mexico IPC                    45,647.82     -0.13      6.21
 Chile IPSA                     4,001.36     -0.07      8.73
 Chile IGPA                    19,672.54     -0.04      8.38
 Argentina MerVal              13,166.20     -2.82     12.77
 Colombia IGBC                  9,763.13     -1.73     14.22
 Venezuela IBC                 15,302.30     -2.02      4.89
 (Reporting by Flavia Bohone, writing by Silvio Cascione,
editing by G Crosse and Dan Grebler)
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