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EMERGING MARKETS-Peru sol slumps on vote jitters; Latam FX firms

Published 04/13/2011, 05:23 PM
Updated 04/13/2011, 05:28 PM
BARC
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* Most currencies bounce back from steep losses this week

* Real, Mexican peso set for range trading

* Peru sol hits weakest since December

* Brazil real firms 0.12 pct, Mexico peso 0.54 pct (Recasts, adds comments, details on Peru's sol)

By Michael O'Boyle

MEXICO CITY, April 13 (Reuters) - Peru's sol slumped to its weakest since December as investors worried a left-wing nationalist would win a presidential run-off election, while currencies in Brazil and Mexico firmed on slightly higher U.S. stocks.

Peruvian leftist presidential candidate Ollanta Humala won a first-round vote on Sunday and will face right-wing candidate Keiko Fujimori in a June 5 run-off.

Humala's chief economics adviser told Reuters on Wednesday that his boss's proposals have "nothing to do" with left-wing models in Venezuela and Bolivia and that Humala would emphasize economic stability if elected in June. [ID:nN13286700]

Nonetheless, the sol bid 0.36 percent weaker at 2.8190 per dollar.

"Peruvian assets are pricing in an increased risk premium related to the possibility that Humala becomes president," said Roberto Melzi, an analyst at Barclays Capital in New York.

The rest of Latin America's key currencies firmed, with Chile's peso getting a boost from an aggressive interest rate hike on Tuesday that made Chilean debt more attractive for foreign investors.

Chile's peso bid 0.36 percent stronger at 472 per dollar.

Brazil's real bounced back after recording its biggest slump in three months in the previous session. Mexico's peso also recovered from its sharpest losses in a month.

U.S. stocks edged higher, rebounding from a steep sell-off on hopes of solid first-quarter earnings.

Traders said Latin American currencies would likely trade in a range bounded by recent highs as investors eye whether riskier assets like stocks, commodities and emerging market currencies can resume a recent trend upward or lose steam.

Investors will watch upcoming data in major economies to see if high oil prices are weighing on global growth.

"We should be in a period of consolidation of the recent gains and waiting for some data to see if we can continue rallying, or if we could see a correction," said Jorge Perez Duarte, a managing director for emerging markets at TD Securities in Toronto.

"You really need to see stronger growth to keep fueling this rally and the risk is to see weaker growth," he added.

Mexico's peso firmed 0.54 percent to 11.7702 per dollar after pulling back this week from its strongest level since October 2008.

Solid economic growth across Latin America, as well as expectations that U.S. interest rates will remain ultra-low for some time, has been supporting the region's currencies and encouraging investors to snap up assets on dips.

Investors have been borrowing funds in low-yield currencies such as the dollar to buy Latin America's higher-yielding debt.

Brazil's real bid 0.13 percent firmer to 1.589 per dollar. Investors are betting that Brazilian authorities are unwilling to implement stronger capital controls to contain the real's recent gains.

But central bank dollar purchases could contain the currency's advance after the real surged around 5 percent in the prior two weeks to hit its strongest since August 2008. (Additional reporting by Nathalia Ferreira in Sao Paulo and Ursula Scollo in Lima; Editing by Dan Grebler)

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