Reuters: US Dollar Report: EMERGING MARKETS-Brazilian real gains for 3rd day on govt action

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EMERGING MARKETS-Brazilian real gains for 3rd day on govt action Dec 6th 2012, 00:25 Wed Dec 5, 2012 7:25pm EST * Brazil narrows reach of IOF tax on foreign loans * Chile economy grows at fastest annual pace of 2012 * Brazil real gains 0.95 percent, Mexico peso 0.14 percent stronger By Walter Brandimarte RIO DE JANEIRO/MEXICO CITY Dec 5 (Reuters) - Brazil's real gained for a third consecutive session on Wednesday after the government unveiled yet another measure that facilitates dollar inflows to the country, while the Chilean peso rose on data showing domestic economic activity sped up in October. The real rose 0.95 percent to close at 2.0955 per U.S. dollar as the government announced it was reducing the reach of a financial transaction tax known as IOF on foreign borrowing by domestic companies. That was the latest in a series of measures announced by the Brazilian government this week to boost the domestic supply of dollars, which are usually more scarce at the end of the year. On Tuesday, the central bank narrowed the scope of the IOF to export prepayments, and on Monday it sold dollars directly to investors. "The government is really loosening the tie in the past couple of days," said Reginaldo Galhardo, a manager at the currency desk of Treviso brokerage in Sao Paulo. "It is backing off because it sees dollars are in short supply." While traders discussed whether the government was defending a new floor for the real around 2.1 per dollar, most economists agree policymakers mostly aim to smooth out end-year currency fluctuations. Barclays analysts said seasonal factors or negative sentiment toward the country have been pressuring the real to weaker levels at a fast pace. "In our view, policymakers will continue to intervene in the market in order to prevent fast bouts of depreciation of the real, but given the weak growth background, we believe there is little, if any, intent to pull the currency below 2.10," analysts Guilherme Loureiro and Marcelo Salomon wrote in a research note. In a sign that investors are betting on a weaker real in the short term, banks adopted a net long dollar position worth $998 million at the end of November, according to central bank data. Expectations that Brazilian policymakers would favor a weaker currency to boost exports grew after data showed the country's economy grew at half the rate economists expected in the third quarter. CHILEAN ECONOMY SOARS In Chile, on the other hand, faster-than-expected economic activity helped drive the peso 0.31 percent higher to 479.20 per dollar. The peso had already gained 8.4 percent so far this year, leading gains among Latin American currencies. Growth in Chile's economic activity accelerated to 6.7 percent in October from the same month a year ago, above analysts' expectations for a 6.4 percent pace and making the world's top copper producer more attractive to foreign investors. Also supporting the Chilean peso were dollar inflows from mining companies, traders said. Other Latin American currencies also gained on Wednesday, with the Mexican peso rising 0.14 percent to 12.9325 per greenback, as appetite for emerging market assets was supported by expectations of strong Chinese growth. Chinese Communist Party chief Xi Jinping said overnight that the country would ensure stable economic growth and stabilize exports. Latin American FX prices at 0023 GMT: Currencies daily % year-to- change ate % Latest change Brazil real 2.0 955 0.95 -10. 83 Mexico peso 12.9 325 0.1 4 8. 02 Argentina peso* 6.4200 0.31 -26.32 Chile peso 479.2000 0.31 8.37 Colombia peso 1,811.8000 0.06 6.99 Peru sol 2.5790 0.04 4.58 * Argentine peso's rate between brokerages Link this Share this Digg this Email Reprints

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