Emerging debt-Latin America rises with US stocks

www.forbes.com Reuters, 03.13.03, 12:33 PM ET By Susan Schneider NEW YORK, March 13 (Reuters) - Latin American sovereign bonds climbed on Thursday as signals the United States may extend its diplomatic drive to win support for a military strike on Iraq fueled a buying spree in U.S. equities and set a rosy tone for the broader region. Brazil's share of J.P. Morgan's Emerging Market Bond Index Plus added 1.28 percent in daily returns, as the country's benchmark C bond <BRAZILC=RR> notched 0.625 points higher to 78.25 bid. The bonds of Ecuador, Venezuela, Colombia and Peru also rose, giving the J.P. Morgan index a gain of 0.12 percent on the day. The climb in Latin American bonds came after White House spokesman Ari Fleischer said a vote on a United Nations resolution opening the door to an invasion of Iraq could spill over into next week. The United States is facing fierce resistance to the war in the U.N. Security Council and even possible no votes from the veto-wielding countries of France and Russia. "This morning there are stories out of the White House that diplomacy will go on until next week," said Paul Masco, head of emerging market trading at Salomon Smith Barney. "It looks like there are two things: war is not necessarily going to happen immediately and, secondly, if it does happen, it will happen with more of a coalition in place than we would have thought a few days ago," he said. So far, only the United States, Britain, Spain and Bulgaria support a resolution giving Iraq just a few days to disarm. The United States and Britain are pushing hard to sew up nine of the 15 Security Council votes, support that would likely enable the nations to argue they have a moral victory to undertake a war even if the resolution were vetoed. U.S. officials said on Wednesday they thought that three Africa votes on the council -- Guinea, Angola and Cameroon -- were leaning their way, but Guinea said on state radio it might abstain from the vote. Chile, Pakistan and Mexico are also undecided, while Russia, France, China, Germany and Syria oppose the resolution. Investors fear a U.S.-led conflict would wreak havoc on an already weak U.S. economy so they take heart from any suggestion that a conflict may be short-lived or postponed. The Dow Jones industrial average <.DJI> added nearly 2 percent in the wake of the White House news, while the Nasdaq Composite Index <.IXIC> gained 1.8 percent. The bonds of market heavyweight Brazil have largely resisted the geopolitical angst generated by the Iraqi war uncertainty as investors cheer new President Luiz Inacio Lula da Silva's push for structural reforms. The nation's debt has surged more than 16 percent so far this year, bolstered by Lula's avowed overhauls of the social security and tax systems. While some investors have questioned how far Brazilian bonds can rise without a resolution to the Iraqi standoff, the debt continues to benefit from investors on the hunt for higher yielding bonds, traders said. "There was a seller out of Russia that went into Brazil," helping buoy Brazil, said an emerging debt trader. "And I think people are more confident -- the market going up always brings buyer." Among other Latin American sovereign bond issuers, Ecuador jumped 3.34 percent in terms of daily returns, while Colombia added 0.39 percent. Venezuela gained 0.1 percent and Peru moved 0.8 percent higher on the day, according to the EMBI-Plus. (Reporting by Susan Schneider; editing by Caroline Valetkevitch; Reuters Messaging: susan.schneider.reuters.com@reuters.net, tel: +1 646 223 6319)