EMERGING MARKETS-Peru sol hits over 3-mo low; Brazil tax eyed

Published 03/28/2011, 06:08 PM
Updated 03/28/2011, 06:12 PM
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* Mexico peso rises 0.15 pct, Brazil real dips 0.12 pct

* Peru sol slumps as Humala takes lead in poll

By Michael O'Boyle and Ursula Scollo

MEXICO CITY, March 28 (Reuters) - Peru's sol slumped the most in nearly two years on Monday after a poll showed a left-wing nationalist presidential candidate leading the race, boding further volatility in the currency.

Investors were also wary of new measures in Brazil to contain the real's strength, while Mexico's peso got a lift from solid U.S. and Mexican economic data. [ID:nN28186066]

Peru's sol hit its weakest level since December after polls showed nationalist Ollanta Humala had narrowly taken the lead in Peru's five-candidate race, but they also showed he would struggle to win a run-off. [ID:nPOLLSPE]

The sol has lost nearly 1.6 percent since Humala's support surged in a poll released the previous weekend.

Humala has gained by toning down radical rhetoric that hurt him in the 2006 race. He and all other main candidates in the race support market-friendly economic policies in place for the last two decades.

Business leaders still view Humala warily due to his radical past and fear he could roll back economic reforms in one of the world's fastest-growing economies.

"It is perceived that he could put the progress that has been made over the last several years in jeopardy," said Roberto Melzi, a strategist at Barclays Capital in New York.

The Peruvian currency bid down around 0.9 percent to 2,813 per dollar, its worst one-day slide since June 2009.

Melzi said the central bank could begin selling dollars to contain losses in the currency if it weakens much more.

Barclays expects Peru to deliver a 50-basis-point hike in April. Melzi said that could also shore up demand for the currency.

The Mexican peso got some support from data showing an unexpected February rise in sales of previously owned homes in the United States, Mexico's leading trade partner. Stronger-than-expected Mexican economic activity in January also helped the currency. [ID:nN28284475] and [ID:nN28114561]

The peso firmed 0.15 percent to 11.9711 per dollar.

Mexico sends around 80 percent of its exports to its northern neighbor. Signs of economic recovery in the United States have supported the peso during recent global financial jitters related to Japan's earthquake and nuclear crisis and unrest in the oil-producing Middle East and North Africa.

Chile's peso bid 0.33 percent weaker to 480.30, hurt by a fall in the price of copper, the country's main export.

Brazil's real bid 0.12 percent weaker at 1.660 per dollar. Local media reported that the government will impose a tax of probably 6 percent on foreign currency debt issued in the private sector.

Analysts said the plan had been expected by financial markets and may not have much of a negative impact on the real if it is announced.

The government has introduced a series of measures in recent months to contain the real's gains, which are hurting local manufacturers.

Financial flows into Brazil have been tempted by the huge spread between interest rates in developed markets and Brazil's double-digit rates.

In October, Brazil tripled to 6 percent the so-called IOF tax it charges foreigners when they buy local bonds. But analysts said the lack of a tax on locals was allowing domestic banks and companies to borrow abroad, invest in Brazil and pocket the difference between interest rates.

"The market is always going to find a way to bring the money in when you have such a huge interest rate differential," said Tony Volpon, head of emerging markets research for the Americas at Nomura Securities in New York. (Additional reporting by Caroline Stauffer in Lima and Moises Avila in Santiago; Editing by Dan Grebler)

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