April 24, 2018 / 11:49 PM / a month ago

EMERGING MARKETS-Mexico peso rebounds, Brazil real's slump deepens

 (Recasts with Mexico peso gains, closing prices)
    MEXICO CITY, April 24 (Reuters) - Mexico's peso bounced back
from a steep selloff on Tuesday, boosted by optimism the country
would strike a new trade deal with the United States, while
worries about elections drove Brazil's currency to a 16-month
low.
    U.S. President Donald Trump said that a new North American
Free Trade Agreement could be hatched quickly as officials from
Mexico, Canada and the United States held talks in Washington in
hopes of tying up a deal in the coming days.
    Mexico sends around 80 percent of its exports to its
northern neighbor and the currency has whipsawed since Trump's
election in late 2016 over the shifting outlook of the NAFTA
deal.
    Mexico's peso gained nearly 0.7 percent, clawing
back a day after its worst one-day percentage loss since Trump
was elected after promising to scrap the NAFTA deal.
    Emerging market currencies had broadly weakened on Monday as
U.S. Treasury yields shot up to a four-year high, lifted by
expectations of a wider fiscal deficit and faster inflation.

    After briefly breaching the 3-percent milestone early on
Tuesday, yields on benchmark U.S. Treasury notes
fell back, rekindling appetite for battered, higher-yield
assets.
    The Colombian peso, which had led losses on Monday on
the heels of a crude selloff, strengthened 1 percent as London
oil futures earlier broke above $75 a barrel.
    Analysts thought the gains could be short-lived due to
concerns about a faster pace of U.S. rate hikes.
    The Brazilian real weakened nearly 0.5 percent to
close at 3.4685 per dollar, its weakest since December 2016.  
    The currency extended a recent stretch of underperformance
as traders fretted over October's election, the country's most
uncertain presidential race in decades.
    Some investors had predicted that the arrest of former
President Luiz Inácio Lula da Silva, who was leading polls and
had rallied against the current government's austerity platform,
would usher in the ascent of more market-friendly candidates.
    But recent polls have shown the Brazilian electorate as
highly fragmented and unsatisfied with the likely candidates,
raising doubts over efforts to curb a growing budget deficit.
    "Our bullish story was mostly based on (recovering)
confidence ... but the election process is not moving in the
expected direction," strategists at Santander wrote in a client
note.
    
    Key Latin American stock indexes and currencies at 2121 GMT:
 Stock indexes             Latest          Daily   YTD pct
                                             pct    change
                                          change  
 MSCI Emerging Markets        1,154.21     -0.35     -0.37
                                                  
 MSCI LatAm                   2,979.18     -0.99      5.34
                                                  
 Brazil Bovespa              85,469.08     -0.16     11.87
 Mexico IPC                  48,046.80     -0.82     -2.65
 Chile IPSA                   5,674.35     -0.53      1.97
 Chile IGPA                  28,542.40     -0.45      2.01
 Argentina MerVal            30,568.86      -1.2      1.67
 Colombia IGBC               12,381.16     -1.09      8.89
 Venezuela IBC               22,316.92     -8.23   1666.78
                                                          
 Currencies                     Latest     Daily   YTD pct
                                             pct    change
                                          change  
 Brazil real                    3.4685     -0.48     -4.47
 Mexico peso                   18.8220      0.66      4.70
 Chile peso                      598.6      0.65      2.68
 Colombia peso                 2,782.6      1.05      7.17
 Peru sol                         3.23      0.12      0.22
 Argentina peso                20.2575      0.01     -8.18
 (interbank)                                      
 Argentina peso                  20.54      0.15     -6.38
 (parallel)                                       
 
 (Reporting by Sheky Espejo in Mexico City and Bruno Federowski
in Sao Paulo; editing by G Crosse)
  
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