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EMERGING MARKETS-Argentine peso firms again on capital controls; stocks hit by trade woes

Sruthi Shankar

(Updates with closing prices; adds analyst quotes) Sept 3 (Reuters) - Argentina's peso firmed for a second day on Tuesday after the country imposed capital controls, but the Merval slumped to a two-year low amid a broad weakening of Latin American stocks on rising U.S.-China trade tensions. The peso closed up 5.39% at 55.98 per dollar as Wall Street traders returning from a U.S. long holiday weekend snapped up the beleaguered currency after President Mauricio Macri's government on Sunday authorized the central bank to restrict purchases of dollars as it burns through its reserves to prop up the peso. Traders said the central bank intervened by selling dollars from its reserves. The peso also extended gains in black market trading, rising 4.1% to 61 per dollar, traders said. However, the gap between the official and black market rates was at its largest margin since 2015, raising doubts about the real value of the currency. "The black market rate is lower then the official, suggesting that there is still some pressures there," said Edward Glossop, Latin America economist at Capital Economics. "History suggests that capital controls do sometimes help to alleviate pressure on currencies in the near term, but over the longer term, when people start finding loopholes in the system, that's when it makes it more difficult." The controls follow a sharp market reaction to a sovereign credit rating downgrade by Standard & Poor's, which said the government's plan to "unilaterally" extend the maturities of many bonds had triggered a brief default. "Argentina is not insolvent, rather the country faces a severe liquidity shortage," Jan Dehn, global head of research at Ashmore Group, wrote in a note. "Liquidity shortages could still push the country into insolvency, especially since Argentina does not have a large, well-functioning domestic bond market, but this risk is now significantly reduced." Buenos Aires-listed shares tumbled 12%, a day after closing 6% higher, as investors worried about an escalation in the U.S.-China trade war and weak manufacturing data out of the United States. MSCI's index of Latin American stocks was 1%lower, in line with its emerging peers, as the United States and China imposed news tariffs. Stocks in Chile declined 1%, while the peso fell to its lowest level since January 2016 ahead of a central bank decision on interest rates. Chile's central bank is expected to cut rates by 50 basis points to 2%, according to a Reuters poll, as the world's top copper producer grapples with an increasingly sluggish economy that has suffered amid global trade tensions.

Key Latin American stock indexes and currencies at 1953 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 974.04 -0.99MSCI LatAm 2541.71 -1.04Brazil Bovespa 99719.06 -0.9Mexico IPC 41815.95 -0.69Chile IPSA 4721.78 -1.06Argentina MerVal 23094.79 -11.837Colombia IGBC 12630.61 -0.05Currencies Latest Daily %

change

Brazil real 4.1780 0.09Mexico peso 20.0017 0.69Chile peso 725.5 -0.10Colombia peso 3440.73 -0.09Peru sol 3.404 0.03Argentina peso 55.9000 5.55

(interbank)

(Reporting by Sruthi Shankar and Agamoni Ghosh in Bengaluru; Editing by Leslie Adler)