Brazil Real Falls on Swap Sale; Mexico Gains: Latin Currencies
June 2 (<a href=quote.bloomberg.com>Bloomberg) -- Brazil's real extended declines, falling for a second day, after the central bank refinanced 77.8 percent of maturing contracts used by investors to insure against exchange-rate risk, a result seen boosting demand for dollars.
Brazil's real shed 0.4 percent to 2.9805 per dollar at 2:32 p.m. New York time from Friday. The decline has cut the real's gains this year to 19 percent against the dollar. It remains the best performer of the world's 16 most-traded currencies. Mexico's peso rose, pacing increased U.S. manufacturing.
``Our threshold is for about a 75 percent refinancing; anything less should cause the real to decline,'' said Marco Sudano, director of the Treasury department at Uniao de Bancos Brasileiros SA, Brazil's fifth-largest commercial bank.
Today's auction of interest-rate swaps is the first since government ended a promise to refinance all of its $100 billion of outstanding swaps when they expire. With the government's failure to refinance all of the $1.41 billion due June 12, investors may have to buy dollars to hedge against declines in the real, a move that may cause the real to weaken.
2002
Brazil sold swaps and dollar-indexed Treasury bonds in an effort to bolster the currency when it came under attack during Argentina's debt crisis and before last-year's presidential elections in Brazil on concern a new president might lead South America's largest economy into default on $300 billion of bonds.
Under the contracts, the central bank guaranteed about $100 billion of investment against any decline in the real. While the government is now making money on its bet as real is the best performing of the world's 16 most widely traded currencies in 2003, it lost large sums last year when the real weakened 35 percent. The government wants to reduce its own exposure to such risks, the central bank said.
Brazil's 8 percent bond maturing in 2014 declined 0.56 cent to 88.63 cents on the dollar causing the yield to rise to 10.84 percent, according to J.P. Morgan Chase & Co.
Mexico
The Mexican peso rose for the third day in four after manufacturing in the U.S. rose for the first month since December, boosting prospects for growth in the world's biggest economy and Mexico's largest trading partner.
The peso rose 0.6 percent to 10.2580 per dollar and earlier rose 0.9 percent to 10.2175 per dollar. The peso has gained 10 percent against the dollar since falling to a record low of 11.2644 on March 6 and is up 1.3 percent in 2003, the 12th-best performance of the 16 most widely traded currencies.
The bulk of the peso's rise followed the release of the Institute for Supply Management's manufacturing index for May, showing a rise to 49.4 from 45.4 in April, building on reports last week showing rising output and consumer confidence. Mexico's $600 billion economy, Latin America's largest, sends about 85 percent of its exports to the U.S., representing about a quarter of its national income, and receives about 70 percent of its foreign investment from its northern neighbor.
``If you see improvement in U.S. manufacturing, it could be a sign that any slowdown in Mexico may be tempered,'' Jana Butland, a currency strategist at FleetBoston, adding that the currency was also buoyed by rising stocks in the U.S.
The Standard & Poor's 500 Index added 1.5 percent, the Dow Jones Industrial Average gained 1.6 percent and the Nasdaq Composite Index jumped 1.5 percent.
Mexico's export-assembly plants need a recovery in the U.S. and among American consumers to halt a slowdown that has cost about 200,000 jobs since the year 2000 and contributed to the central bank to forecast slow growth this year. Still, lower interest rates and slower inflation on the domestic front.
Regional Currencies
Chile's peso strengthened for a third day, gaining to 711.10 per dollar from 711.35, and Argentina's peso rose for a second day, adding 0.6 percent to 2.8450 per dollar from 2.8620 per dollar on Friday.
Peru's new sol strengthened for the second day in three, rising to 3.4918 per dollar from 3.4945 per dollar on Friday. Colombia's markets were closed for a national holiday. Venezuela fixed its bolivar at 1,598 per dollar earlier this year.
-- Jeb Blount in Rio de Janeiro at (5521) 2516-1552, or jblount@bloomberg.net, Alexander Hanrath in Mexico City (52-55) 5242-9252, or ahanrath1@bloomberg.net, through the New York newsroom (1-212) 318-2730 Editor: Jameson. type {WCRS
Company news: 1323Z BZ
Regional news: NI BRAZIL NI LATAM NI EM NI FRX NI GFX NI MMK NI CEN NI BON NI TOP NI GOV NI MEX NI CHILE NI ARGENT NI PERU NI VENZ NI COLOM
#<768424.391099># -0- (BN ) Jun/02/2003 18:33 GMT
Last Updated: June 2, 2003 14:33 EDT