Reuters: US Dollar Report: EMERGING MARKETS-Mexico, Chile pesos gain on China, U.S. manufacturing

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EMERGING MARKETS-Mexico, Chile pesos gain on China, U.S. manufacturing Apr 2nd 2012, 16:51 Mon Apr 2, 2012 12:51pm EDT * Mexico peso gains 0.36 percent; Brazil real off 0.16 percent * Real underperformed in 1st quarter, intervention fears weigh * Chile peso gains 0.7 percent, copper up more than 1 percent By Caroline Stauffer SAO PAULO, April 2 (Reuters) - The Mexican and Chilean pesos strengthened o n M onday after manufacturing data from the world's two largest economies beat economists' estimates, though Brazil's real weakened. Data showed new factory orders in China, a major market for Latin America's raw materials, rose to an 11-month high in March while growth in U.S. manufacturing slightly beat economists' expectations in February. That helped boost prices Of metals such as copper that are key exports for some Latin American economies. China and the United States are Latin America's largest trading partners. The Mexican peso strengthened 0.36 percent to 12.7799 per U.S. dollar, after posting its biggest one-quarter gain ever on Friday. Chile's peso gained 0.7 percent to bid 484.7 per dollar. Copper for delivery in three months rose 1 percent, on track for its strongest close since March 19, on demand from China, the biggest consumer of the reddish metal. Chile gets more than half of its export earnings from copper, a key component in electrical and electronic equipment. "The Chinese news was definitely encouraging," said Nicholas Bennenbroek, head of currency strategy at Wells Fargo in New York. Mexico's currency, which had weakened for the five previous sessions, is particularly sensitive to U.S. manufacturing data as many Mexicans work in U.S. factories and the United States buys nearly 80 percent of Mexico's exports by value. "It had been pretty stable, the U.S. data helped," said Alfredo Puig, a trader at Vector brokerage in Monterrey. Brazil's real, however, weakened 0.16 percent to bid 1.8277 per dollar. The currency has underperformed its Latin American peers in recent months as policymakers take measures to weaken it in an effort to protect domestic manufacturers. The real strengthened just 2.17 percent in the first quarter of 2012, when the Mexican and Colombian pesos gained around 9 percent. Brazil's central bank often purchases dollars in the spot market on days the currency is strengthening. The government has raised its financial transactions or "IOF" tax and on March 12 extended its scope to foreign debt maturing in up to five years. Some traders have sold the real fearing the government could take additional measures like extending the tax to all financial transactions. Though those concerns have eased somewhat, investors are also opting for other Latin American currencies because Brazil's central bank is expected to lower interest rates in coming months. That would curb potential returns in Brazil as economic growth slows, said Bennenbroek of Wells Fargo. "Even if they aren't introducing new currency measures, these are all factors that will restrain the real," he said. "Chile has had one of the stronger currencies because inflation is favorable and the central bank is not likely to cut rates." The 6 percent gain in the Chilean peso this year is triple the gains in Brazil's real. Link this Share this Digg this Email Reprints

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