January 31, 2019 / 9:52 PM / 10 months ago

EMERGING MARKETS-Latam assets cheer Fed pause, stocks log best January since 2006

 (Rewrites throughout to update prices, market details)
    By Susan Mathew
    Jan 31 (Reuters) - Latin American stocks and currencies
rallied on Thursday, powered by the U.S. central bank's promise
to be patient in hiking interest rates, helping stocks post
their best January in 13 years.
    Markets globally cheered the U.S. Federal Reserve's stance,
especially emerging markets that saw massive capital outflows
last year thanks to a hawkish Fed raising the benchmark
borrowing rate four times. 
    "Equity markets liked what they heard – there is a sense
that the Fed is very eager to prevent market volatility," said
Paul Donovan, chief economist at UBS Global Wealth Management.
    Regionally, Mexican and Argentine stocks rose
0.8 percent each, while Brazil's Bovespa stock index
climbed 0.4 percent to an all time high of 97,393.74.
    Over the month, the MSCI index of Latin American shares
 tacked up 14.9 percent in their best January
since 2006. Brazil shares rose 11 percent and Argentine
shares were up 20 percent over the month, its best
January since 2013.  
    Among currencies, MSCI's Latam currency index
 clocked its best month since June 2016.
    On the day, Brazil's real climbed more than 1 percent
to a three month high, while the Argentine peso firmed
0.8 percent.
    "We now think it is most likely the Fed will hike one last
time in September," said analysts at TD Securities. 
    But, considering how much emerging markets have rallied over
the past few months, a dovish Fed may not serve as a catalyst
for a long terms rally unless it starts indicating a rate cut,
Morgan Stanley analysts said. 
    The Mexican peso, a weather vane for trade sentiment,
built some gains after China's leader Xi Jinping told U.S.
President Donald Trump in a letter that he hopes both sides will
be able to meet each other halfway to reach a trade agreement
before a March 1 deadline, Trump said on Thursday.
    Other Latin American currencies had closed trading for the
day before Trump revealed the letter.
    The Mexican peso recovered from losses logged last session
after rating agency Fitch downgraded debt-laden state oil firm
Petróleos Mexicanos, or Pemex. But analysts warn the rally and
monthly gains may be over done as political risk remain high.

    The Chilean peso hit its highest since early October,
tracking copper prices that surged to multi week highs. The
country's central bank raised the benchmark interest rate by 25
basis points to 3 percent after market close on Wednesday.

    The Colombia peso gained the most in the region, up
1.9 percent and posted its best day since August last year. The
Colombian central bank held its key interest rates for a ninth
consecutive month on Thursday. 
    "The central bank will likely stay on hold until the second
half of the year," analysts at Morgan Stanley said in a note.
    Latin American stock indexes and currencies at 2139 GMT:
    Stock indexes             Latest    Daily %
 MSCI Emerging Markets         1049.93      1.28
 MSCI LatAm                    2947.57      2.35
 Brazil Bovespa               97393.74      0.41
 Mexico IPC                   43987.94      0.82
 Chile IPSA                    5405.61      0.32
 Argentina MerVal             36326.92       0.8
 Colombia IGBC                11828.32     -0.61
       Currencies             Latest    Daily %
 Brazil real                    3.6435      0.37
 Mexico peso                   19.1085      0.08
 Chile peso                      655.4      1.24
 Colombia peso                 3103.25      1.88
 Peru sol                        3.327      0.72
 Argentina peso                37.2500      0.75

 (Reporting by Susan Mathew in Bengaluru; editing by Grant
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