EMERGING MARKETS-Latam currencies retreat from key levels

* Brazil’s real slips 0.5 pct, Mexican peso down 0.4 pct

* Opposition party’s gains in Brazil make traders nervous

* Chilean central bank to raise rates at Thursday meeting

By Caroline Stauffer and Samantha Pearson

MEXICO CITY/SAO PAULO, Oct 14 (BestGrowthStock) – Latin American
currencies weakened on Thursday, retreating from important
technical levels after U.S. employment data stoked concerns
about the U.S. economic recovery.

Mexico’s peso weakened 0.42 percent to 12.4374. The peso
appreciated to the 12.35 level earlier in the session, which
triggered a round of profit-taking that took the currency to
its session high of 12.4757.

Expectations the U.S. Federal Reserve will flood the U.S.
market with cash by purchasing U.S. debt to drive borrowing
costs lower have lifted demand for higher-yielding assets,
spurring an extended rally in Latin American currencies.

But expectations of monetary easing in the world’s largest
economy, fueled by data showing a rise in U.S. weekly jobless
claims on Thursday, also demonstrate fundamental weakness in
the world’s largest economy, where Mexico sends 80 percent of
its exports.

“We’re seeing the reality now and not the rate,” said
Alfredo Puig, a trader at brokerage Vector in Monterrey,
Mexico.

The Brazilian real (BRBY: ) was bid 0.48 percent weaker at
1.661 reais per U.S. dollar on the local spot market after
reaching its strongest level in two years earlier in the
session.

Traders were quick to take profits after the currency broke
through the closely watched level of 1.65 reais per dollar.
Speculation has mounted that the government is preparing fresh
measures to deal with the real’s rally, after a tax hike on
foreign purchases of bonds last week did little to curb
inflows.

Brazil is also preparing for the second round of its
presidential elections.

Ruling party candidate Dilma Rousseff, who had been
expected to sail to an easy victory this month, has been
steadily losing votes to opposition candidate Jose Serra, which
has made traders nervous.

Serra is expected to take a much more proactive role in the
market, taking more measures to weaken the currency and protect
exporters.

“There is some uncertainty over the shrinking gap between
Dilma and Serra,” said Carlos Gandolfo, a partner at Sao
Paulo’s Pioneer brokerage.

CHILE EYES CENBANK

The Chilean peso (CLP=: ) traded even for most of the morning
session before weakening 0.22 percent to 478.8 ahead of a
central bank announcement expected later in the day.

Interest rate futures show the market expects the central
bank to raise its benchmark interest rate by 25 basis points to
2.75 percent at its Thursday meeting.

Minutes of the central bank’s September rate-setting
meeting released last week showed bank board members had
considered a 25 basis point increase last month and saw the
peso’s recent appreciation possibly impacting monetary policy.

“Specifically, the minutes mention both the appreciation of
CLP and falling inflation expectations as reasons to, at that
meeting, adopt a slower pace of policy tightening,” a report
from Nomura Securities said.

The Chilean peso has soared over recent months, partly due
to a rally in the price of copper, the country’s main export.
(Additional reporting by Brad Haynes and Froilan Romero in
Santiago; Editing by Dan Grebler)

EMERGING MARKETS-Latam currencies retreat from key levels