January 24, 2018 / 2:15 PM / a year ago

EMERGING MARKETS-Brazil markets soar as Lula trial adds to EM rally

    By Bruno Federowski
    BRASILIA, Jan 24 (Reuters) - Brazilian markets surged on
Wednesday as bets that former President Luiz Inácio Lula da
Silva would be barred from running in this year's presidential
race added to a global emerging market rally.
    The benchmark Bovespa stock index hit an all-time
high above 82,000 points as an appeals court discussed whether
to confirm Lula's conviction on corruption charges.
    Lula, who has railed against President Michel Temer's
austerity platform and is leading polls of voter intentions for
the October election, would be banned from the race by an
unfavorable ruling, though he could still appeal the decision.
    Blue-chip Brazilian stocks such as lenders Itaú Unibanco
Holding SA and Banco Bradesco SA, miner
Vale SA and state-controlled oil firm Petróleo
Brasileiro SA led the rally.
    The sole decliner on the index was wood pulp producer Fibria
Celulose SA, which could see the value of its exports
fall as the Brazil's currency appreciated.
    Most traders expected the court to uphold Lula's conviction,
but there were doubts about whether all three judges weighing
the case would vote unanimously.
    "A 3-0 vote against Lula would make it less likely that he
runs," analysts at LCA Consultores wrote in a report. "Our
baseline scenario is that Lula will be convicted. It is harder
to guess whether all judges will agree, but a unanimous decision
seems to us a bit more likely than other possibilities."
    The Brazilian real firmed 1.6 percent, the biggest
gainer among Latin American currencies amid broad U.S. dollar
    The dollar slid to a three-year low against a basket of
currencies after the U.S. Treasury secretary said he welcomed
weakness in the currency. 
    In a break with the traditional strong dollar mantra,
Treasury Secretary Steven Mnuchin said the weaker dollar was
positive for American trade.
    Currencies from Mexico, Chile and Colombia
 firmed between 0.8 percent and 1.2 percent.
    Also helping to support demand for the Mexican peso were
upbeat comments by negotiators looking to overhaul the North
American Free Trade Agreement (NAFTA). 
    U.S. President Donald Trump said the talks were going
"pretty well" and Canada's chief negotiator said he had high
hopes for progress.
    Trump, vowing to undo what he portrays as disastrous trade
deals, has in recent days expressed different views about NAFTA,
stoking concerns about trade with Mexico.
    Key Latin American stock indexes and currencies at 1340 GMT:
 Stock indexes                               daily %    YTD %
                                              change   change
 MSCI Emerging Markets              1256.24     0.31     8.11
 MSCI LatAm                         3128.99     2.54      7.9
 Brazil Bovespa                    82547.58     2.32     8.04
 Chile IPSA                         5794.77    -0.09     4.14
 Chile IGPA                        29134.71    -0.07     4.12
 Currencies                                  daily %    YTD %
                                              change   change
 Brazil real                         3.1859     1.62     4.00
 Mexico peso                        18.5490     0.80     6.20
 Chile peso                          603.74     0.85     1.81
 Colombia peso                      2818.93     1.18     5.78
 Peru sol                             3.212     0.22     0.78
 Argentina peso (interbank)         19.4200    -0.39    -4.22
 Argentina peso (parallel)            19.83    -0.15    -3.03
 (Reporting by Bruno Federowski; Editing by Meredith Mazzilli)
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