June 2, 2020 / 7:03 PM / a month ago

EMERGING MARKETS-Brazil leads Latam rally; Argentina extends debt deadline

    * Brazil's real at over 6-week high
    * Mexican, Colombian pesos buoyed by strong oil prices
    * Argentina extends debt restructuring deadline to June 12
    * Analysts see Mexican peso outperforming in near-term

 (Adds details, updates prices)
    By Susan Mathew and Ambar Warrick
    June 2 (Reuters) - Latin American currencies rallied on
Tuesday with Brazil's real and stocks leading gains as hopes for
a recovery from a deep recession buoyed sentiment.
    Brazil's Bovespa index scaled 12-week highs, while
the real jumped more than 3% to the dollar as the
country's government launched a new emergency credit line of 20
billion reais ($3.73 billion) to help small and mid-size
companies.
    While easing coronavirus lockdowns, and no immediate fallout
from escalating U.S.-China tensions, have helped Latin American
assets recoup some of their losses this year, there are still
concerns over the full extent of the COVID-19 pandemic.
    The economic outlook for Latam's largest economy remains
bleak, with the country's treasury department expecting Brazil
to end 2020 with debt at 94% of GDP unless the government shows
commitment to fiscal reforms. 
    An ongoing federal investigation into Brazilian President
Jair Bolsonaro has added to woes. The speaker of Brazil's lower
house of Congress on Monday did not dismiss the possibility of
opening impeachment proceedings against Bolsonaro.
    Mexico's peso rose 2%, touching an 11-week high
against a weaker dollar. The peso has gained about 10% over past
12 sessions with analysts expecting the currency to outperform
regional peers in the short term.
    Given that monetary and fiscal measures have postponed
near-term funding distress, it is possible to position for a
recovery in emerging markets from March lows, said Goldman Sachs
analysts, pointing to the Mexican peso and the Bovespa as Latam
beneficiaries. 
    Rising oil prices also helped the Mexican peso, while crude
exporter Colombia saw its peso come near three-month
highs. 
    Argentina, meanwhile, extended the deadline to restructure 
$65 billion in debt to June 12 and said it may sweeten its most
recent offer to creditors. The country is already in default
after having missed an interest payment extension on May 22.

    The government may improve its offer less than what
creditors expect, given the International Monetary Fund's
backing for its current deal terms, Citigroup analysts said. 
    "But this argument is unlikely to be very effective as the
IMF's debt sustainability assessment treats Argentina's
macroeconomic policies as exogenous, which is obviously not the
case." 
    Concerns also stem from the widening gap between the
official and black market rate of the Argentine peso. The
currency is being held artificially high by strict currency
controls, even as fears over the economy and demand for dollars
drive unofficial rates to record lows.
    
    Key Latin American stock indexes and currencies:
    
    Stock indexes             Latest        Daily % change
 MSCI Emerging Markets          967.19                    1.65
                                        
 MSCI LatAm                    1889.43                    3.74
                                        
 Brazil Bovespa               90390.25                       2
                                        
 Mexico IPC                   37426.52                    1.21
                                        
 Chile IPSA                    3748.69                    1.71
                                        
 Argentina MerVal             41424.63                   3.518
                                        
 Colombia COLCAP               1115.74                   -0.11
                                        
                                                              
       Currencies             Latest        Daily % change
 Brazil real                    5.2187                    3.12
                                        
 Mexico peso                   21.7808                    1.12
                                        
 Chile peso                      780.2                    1.70
                                        
 Colombia peso                 3635.26                    2.06
 Peru sol                       3.3947                    0.74
                                        
 Argentina peso                68.7100                   -0.12
 (interbank)                            
                                        
 
 (Reporting by Susan Mathew in Bengaluru; Editing by Tom Brown)
  
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