EMERGING MARKETS-Traders bet on Brazil rate hike, currencies up

* Traders, economists at odds over Brazil’s rate decision

* Brazil’s real adds 0.41 pct; Mexican peso gains 0.63 pct

(Adds Chile comment, updates prices)

By Samantha Pearson and Caroline Stauffer

SAO PAULO/MEXICO CITY, Dec 2 (BestGrowthStock) – Yields on
Brazilian interest rate futures hit multi-month highs on
Thursday as traders defied economists and bet the central bank
would raise rates next week to curb inflation.

Predicting borrowing costs in Brazil is particularly tricky
right now. Inflation has been speeding up more than expected
but some dismiss that as a temporary blip in food prices.

As President-elect Dilma Rousseff prepares to take office
with a new central bank president on board, speculation has
also risen about political interference in the rate decision.

The yield on the contract due January 2012 (DIJF2: ), one of
the most heavily traded contracts of the session, rose to 12.24
percent from 12.13 percent, hitting its highest since June.

While economists largely predict the benchmark Selic rate
will be left untouched at 10.75 percent at the central bank’s
meeting next Wednesday, the market is now confidently pricing
in a 25 basis point increase. [ID:nSPG003161]

“The markets and economists are in disagreement. I’ve got a
forecast of 25 basis points but I think I’m the only one,” said
Andre Perfeito, an economist at Gradual Investimentos in Sao
Paulo. “Inflationary pressures have increased and everyone has
seen this. That’s the first thing. Second thing: everyone
believes interest rates will go up, so why not now?”

In the run-up to the central bank’s July and September
meetings, traders and economists were also at odds over the
bank’s decision. Traders were proved right both times.
[ID:nN09273541]

U.S. HOUSING DATA BOOSTS PESO

Meanwhile, Latin American currencies firmed as concern over
euro zone periphery nations eased and strong U.S. housing data
lifted hopes for economic recovery. [ID:nN02209260]

The Mexican currency (MXN=: ) strengthened 0.63 percent to
12.326 per dollar. The United States is Mexico’s main trading
partner and signs of stronger U.S. economy are generally
helpful for Mexican assets.

“Another piece of good data from the United States, pending
home sales, helped,” said Enrique Trejo, head of currency
trading at brokerage IXE in Mexico City. “But more than that we
saw a rebound in the euro.”

Reports the European Central Bank was buying Portuguese and
Irish debt outweighed disappointment ECB President Jean-Claude
Trichet did not announce a more aggressive policy response to
ease the euro zone debt crisis.

Market sources suggested the bank purchased more bonds than
they did all of last week. [nN024504720]

Brazil’s currency (BRBY: ) closed bidding 0.41 percent
stronger at 1.701 per U.S. dollar on the local spot market,
strengthening for the fourth consecutive session.

The Chilean peso (CLP=: ) also firmed, closing 0.27 percent
stronger at 484 per dollar as the price of copper, the
country’s main export, rose sharply.

“The peso was favored by the positive external environment,
with global stocks up and higher copper prices,” said one
trader in Santiago. “Actually with these fundamentals the peso
should have strengthened even more, but there were some dollar
purchases in the local market.”
(Additional reporting by Froilan Romero in Santiago, Editing
by Chizu Nomiyama)

EMERGING MARKETS-Traders bet on Brazil rate hike, currencies up