Brazil Real Rises on International Bond Sale: Latin Currencies

By Elzio Barreto

Sao Paulo, April 29 (<a href=quote.bloomberg.com>Bloomberg) -- Brazil's currency rose from yesterday's eight-month high on optimism the government's sale of $1 billion in bonds shows increased confidence in the country's ability to pay its debts.

The currency rose as much as 1.9 percent to 2.9025 reais per dollar, its strongest level in almost nine months, and at 3:35 p.m. New York time, was trading at 2.9105. The real has gained 21 percent in 2003, the best performance among the 59 currencies tracked by Bloomberg. The Mexican and Chilean pesos strengthened.

Brazil sold $1 billion of bonds due Jan. 16, 2007, and was priced to yield 10.7 percent, according a spokesman for UBS Warburg LLC, which is managing the sale with Merrill Lynch & Co. Brazil is taking advantage of falling borrowing rates as investors gain confidence in its ability to pay its roughly $300 billion in debt.

The sale is important because it shows international markets believe in Brazil's credibility,'' said Carlos Gandolfo, a partner at Pioneer Corretora de Cambio SA, a Sao Paulo currency broker. There is a lot of talk that most of the bonds have been placed, which signals there is a lot of demand for the bonds.''

Also boosting the currency was the revision of the country's B+ credit rating to stable from negative by Standard & Poor's Rating Services, citing ``prospects fro a further strengthening of Brazil's fiscal position,'' S&P said in a statement.

Brazil's currency yesterday closed at its strongest level since Aug. 8 after central bank President Henrique Meirelles said the currency was still undervalued'' and we still have lots of room to see the currency appreciate.''

Exporters

Meirelles' comments damped investor concern the central bank might take steps to slow the real's appreciation against the dollar as a way to sustain export growth.

Following the central bank chief's comments, the bank said it won't renew a $429 million credit line to exporters that is maturing on May 5, on increased bond sales by banks and companies that are bringing U.S. dollars to the country.

The credit line was part of a $2 billion program the central bank set up last year to finance exports, as international banks such as Citigroup Inc. and FleetBoston Financial Corp. cut financing to Brazilian companies.

Not renewing the trade lines would pressure the exchange rate, but the recent good news and inflows are more than making up for that,'' Gandolfo said. The exchange rate is getting closer to year-ago levels, but it still has more room to gain.''

The real rose in the futures market. The U.S. dollar contract for May 1 settlement, the most traded on Sao Paulo's BM&F commodities and futures exchange, fell 1.5 percent to 2.919 reais to the dollar.

The country's benchmark 8 percent bond due 2014 climbed 0.25 cent on the dollar to 86.88, its highest level since October 1997, paring the yield to 11.28 percent.

Mexico

Mexico's peso rose to a four-month high after consumer confidence in the U.S. took its biggest monthly jump in 12 years, boosting the prospects for growth in world's largest economy and Mexico's biggest trading partner.

The peso rose as much as 0.8 percent to 10.2845 per dollar, its strongest level since reaching 10.25 per dollar on Dec. 30, and was recently exchanging hands at 10.2895. The peso has gained 9.5 percent since falling to a record low of 11.2644 on March 6.

Investors were buoyed by the New York-based Conference Board's report today that its consumer confidence index increased to 81 from 61.4 in March. The rise was the biggest since March 1991, the end of the previous war with Iraq, and well above the median forecast of 70 in a Bloomberg News survey of 62 analysts.

U.S. consumers buy 85 percent of Mexico's exports, representing a quarter of its $600 billion gross domestic product, while U.S. investors account for 70 percent of the direct foreign investment flowing into Latin America's largest economy.

Cone

Argentina's peso rose to near a one-year high reached last week, gaining 2.2 percent to 2.8050 per dollar, 1 centavo weaker than its intraday high of 2.7950 reached April 22. The currency last traded at a stronger level on April 17, 2002.

Chile's currency rose 0.3 percent to 706.15 per dollar and earlier reached 704.20, its strongest level since trading at 699.60 on Dec. 23, after the price of Chile's No. 1 export, copper, had it biggest one-day gain in two-weeks.

Andes

Colombia's peso rose rose 0.4 percent to 2,875 per dollar, paring its loss against the dollar in 2003 to 0.3 percent.

Peru's new sol rose 0.1 percent to 3.4595 per dollar.

Venezuela fixed its bolivar currency at 1,598 per dollar after it plunged to a record-low of 1,921.8. Last Updated: April 29, 2003 15:37 EDT