EMERGING MARKETS-Mexican peso hits 2010 low against Brazil real

* Investors prepare for key U.S. data this week

* Brazil’s real firms 0.2 pct, Mexican peso loses 0.3 pct

* Yields on Brazil rates drop after local industrial data

By Samantha Pearson and Caroline Stauffer

SAO PAULO/MEXICO CITY Aug 31 (BestGrowthStock) – The Mexican peso
sunk to its weakest level this year against the Brazilian real
on Tuesday as concerns deepened about the economic recovery of
the United States, Mexico’s top trading partner.

At home, gruesome killings and the murder of local
politicians in the country’s escalating war on drug cartels has
also started to worry investors abroad.

Meanwhile, Brazil’s real has been boosted by optimism over
fund-raising plans by local companies, which should lure even
more foreign money into Latin America’s biggest economy.

The Mexican peso lost 0.5 percent against the Brazilian
real (BRLMXN=R: ) to 7.511, paring losses very slightly after
hitting its weakest intraday level against the real since
December 31, 2009.

“The domestic news of increased violence is clearly having
an effect on asset prices and the peso, but more so the
currency remains vulnerable to the U.S. economic outlook,” said
Clyde Wardle, an emerging markets analyst at HSBC, in a note to
clients.

Investors’ pessimism about the recovery of the United
States, which buys about 80 percent of Mexico’s exports,
deepened after data showed business activity in the U.S.
Midwest fell more than expected in August. [ID:nN31183001] They
were also cautious ahead of the country’s key monthly
employment report later this week.

“It’s a big week in terms of relevant information from the
United States — U.S. labor and manufacturing are very
important to Mexico’s economy,” said Daniela Blancas, a
strategist at Scotia Capital in Mexico City.

Against the U.S dollar, the Mexican currency (MXN=: )
weakened 0.33 percent to 13.203 per dollar, while the Brazilian
real (BRBY: ) was bid 0.17 percent stronger at 1.755 reais per
dollar on the local spot market.

Jitters over the U.S. recovery also pushed down the price
of copper, Chile’s main export.

The Chilean peso (CLP=: ) weakened 0.28 percent to 501.90 per
dollar, edging further away from the seven-month high it hit on
Monday.

BRAZIL’S CURRENCY SHRUGS OFF LOCAL DATA

Meanwhile, Brazil’s currency has benefited from the
country’s greater reliance on trade with China, rather than the
United States, and local corporate deals.

“Brazil has continued to look solid through the current
bout of market weakness,” said analysts at RBS in a note. “For
the real, the flow story continues to hold, with Petrobras
(Brazil’s state-run oil company) potentially making a second
market offering in the third quarter, along with several other
initial public offerings all of which should attract
considerable foreign interest.”

The currency firmed on Tuesday despite weak national
industrial data which pushed yields down on Brazilian interest
rate futures contracts.

Industrial production in Brazil rose 0.4 percent in July
from June, far lower than the 0.8 percent median forecast in a
Reuters survey. [ID:nSAQ002469]

The data prompted investors to bet that the central bank
would be under less pressure in the months ahead to raise
interest rates in an effort to contain inflation.

Economists already generally agree that the central bank
will keep rates on hold at 10.75 percent at the conclusion of
its next meeting on Wednesday.

The yield on the contract due January 2012 (DIJF2: ), one of
the most popular contracts of the morning session, fell to
11.32 percent from 11.41 percent.

(Editing by Chizu Nomiyama)

EMERGING MARKETS-Mexican peso hits 2010 low against Brazil real