EMERGING MARKETS-Latam currencies seesaw on Fed, intervention

* Uncertainty grows over scale of U.S. stimulus package

* Brazil’s real adds 0.1 pct, Mexican peso loses 0.5 pct

* Chile peso weakens 0.6 pct, intervention eyed

* Argentina’s risk spread narrows after Kirchner’s death

By Samantha Pearson and Caroline Stauffer

SAO PAULO/MEXICO CITY, Oct 27 (BestGrowthStock) – Latin American
currencies seesawed on Wednesday on uncertainty over the extent
of likely stimulus measures to revive the U.S. economy, which
are expected to boost the region’s bond market.

The U.S. Federal Reserve is expected next week to unveil a
program of U.S. Treasury bond purchases worth a few hundred
billion dollars over several months, the Wall Street Journal
reported on Wednesday. That rattled some investors who had
envisioned a bigger and more immediate stimulus package.

Such measures are likely to keep U.S. yields low,
encouraging more investors to pump cash into Latin America’s
higher-yielding bonds.

Brazil is a prime target because its benchmark interest
rate of 10.75 percent is one of the highest in the world.

The Brazilian real (BRBY: ) opened weaker but was later bid
0.12 percent stronger at 1.702 reais per U.S. dollar on the
local spot market.

“There is some uncertainty over the Fed’s policy next week
so the market is ‘on the fence’ today,” said Carlos Gandolfo, a
partner at Sao Paulo’s Pioneer brokerage.

But traders were also looking to get back into the market
after recent losses. The currency has underperformed the region
over the past few days because of tough action by the
government to curb the real’s recent rally, which is hurting
exporters and widening the current account deficit.

The central bank has recently stepped up its dollar
purchases in the spot market. The government also this month
tripled its tax on foreign bond purchases to 6 percent and
raised a tax on the collateral investors must put down to trade
in the futures market.

Graphic on intervention: http://r.reuters.com/kuv79p

Analysis on Brazil’s forex reform: [ID:nN26120199]

But such measures may only have a short-term effect on the
real, some analysts say.

Higher commodity prices and stimulus measures abroad are
likely to overshadow intervention, causing the real to keep
appreciating, analysts at Citigroup said in a research note.

“Our skepticism regarding the impacts of those measures on
medium- and long-term horizons led us to reduce our year-end
2010 and 2011 USD/BRL forecasts to 1.65 (from 1.72) and to 1.70
(from 1.80), respectively,” they said.


The Mexican currency (MXN=: ) weakened 0.51 percent to 12.468
per dollar after trading at multi-month highs earlier this

The peso has rallied about 6 percent since the end of
August. But Mexico is not losing export competitiveness because
of these currency gains, the finance minister said on
Wednesday. [ID:nN27223162]

The Chilean peso (CLP=: ) weakened 0.58 percent to 494.10 per
dollar, hitting its weakest level in about a month.

The currency has come under pressure from the threat of
intervention. Unlike Mexico, Chile has faced growing pressure
from its exporters to take action.

President Sebastian Pinera said on Monday his government is
working to open capital accounts and relax limits on
investments abroad to battle the currency’s rally.

Traders are concerned that more aggressive measures are on
their way, such as a return to dollar purchases.

Elsewhere in the region, the risk spread on Argentina’s
bonds narrowed to 511 basis points following the death of
former President Nestor Kirchner. [ID:nN27249576]

The policies of Kirchner, who was expected to run for
president in 2011, have caused great concern among investors.
(Editing by Padraic Cassidy)

EMERGING MARKETS-Latam currencies seesaw on Fed, intervention