December 20, 2018 / 10:15 PM / 6 months ago

EMERGING MARKETS-Latam FX gains against soft dollar, stocks mostly slip

 (Recasts, updates prices, adds market strategists' quotes)
    By Aaron Saldanha
    Dec 20 (Reuters) - Latin American currencies rose on
Thursday to take advantage of a weak dollar, with Mexico's peso
among the top gainers, while regional stocks failed to match
their currency peers' display of strength and followed global
bourses' continued slide.
    The dollar weakened, following the Federal Reserve's
signaling of fewer interest rate hikes over the next two years
and expressing caution about the U.S. economic outlook. Worries
over global growth weighed stocks from Asia through Europe and
the Americas.    
    Mexico's central bank hiked borrowing costs by 25 basis
points to 8.25 percent, their highest in more than a decade. The
bank's unanimous decision, for which it cited increased
uncertainty and expectations for stubbornly high inflation,
matched the market's consensus view.
    The cautious outlook which followed the decision propped up
the peso, which traded 1.1 percent higher after seeing a
more than six-week peak during the session. Mexican stocks
 tacked on 0.7 percent.
    "An increased focus on wages and inflation expectations
keeps the risk bias tilted towards a February hike, despite the
increased policy flexibility afforded by a less hawkish Fed,"
wrote Sacha Tihanyi, TD Securities' deputy head of emerging
markets strategy, in a note.
    The difference in yields on 10-year and one-year
Mexican bonds turned negative for the first time in
over two months on Thursday before the rate decision. 
    Furthermore, the difference in yields on three-year
 and one-year government bonds in one of the world's
most liquid local-currency bond markets went deeper into
negative territory. 
    Local Mexican economists told Reuters these moves were an
indication that markets were expecting another Banco de Mexico
rate hike in the near term, beyond that delivered on Thursday.
    Christian Lawrence, a senior market strategist with
Rabobank, wrote in a note that he expected rates to top off at
8.50 percent this cycle, implying one more hike. 
    "We see room for USD/MXN to test 19.80 but we expect 20-21
to dominate in 2019," he said.
    Brazil's real jumped 1.4 percent but its Bovespa
stocks benchmark slid half a percent, hurt by weakness
in the energy and materials sectors.
    State-controlled oil firm Petroleo Brasileiro SA's
(Petrobras) ordinary and preferred shares
slid 2.4 percent and 3.4 percent, respectively, as a dramatic
slide in global oil prices exacted a heavy toll.
    The Chilean peso dipped 0.1 percent while local
stocks slid 1.1 percent.
    Securities of Chilean lithium major Sociedad Quimica Y
Minera De Chile SA tumbled about 7.6 percent after a
warning on lithium prices by Australian firm Orocobre Ltd
 sparked weakness in the sector.
    Colombia's stocks fell for a sixth straight session
while its peso slid 1.6 percent. Stocks in Argentina
 fell 2.4 percent but the country's peso firmed
about 0.8 percent against the weak dollar.
    Key Latin American stock indexes and currencies at 2135 GMT
 Stock indexes                           daily %     YTD %
                             Latest       change    change
 MSCI Emerging Markets          959.79     -0.81    -17.15
 MSCI LatAm                    2528.05      0.05    -10.61
 Brazil Bovespa               85269.29     -0.47     11.61
 Mexico IPC                   41683.27      0.71    -15.54
 Chile IPSA                    5053.37     -1.11     -1.11
 Argentina MerVal             29242.75     -2.42     -2.74
 Colombia IGBC                10995.63     -2.85     -3.30
 Currencies                              daily %     YTD %
                                          change    change
 Brazil real                    3.8419      0.21    -13.76
 Mexico peso                   19.8815      1.14     -0.92
 Chile peso                      690.8     -0.14    -11.02
 Colombia peso                 3264.73     -1.45     -8.66
 Peru sol                        3.349      0.06     -3.34
 Argentina peso                38.0300      0.92    -51.09
 (Reporting by Aaron Saldanha in Bengaluru, Additional reporting
by Sheky Espejo in Mexico City
Editing by James Dalgleish)
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