September 3, 2019 / 8:24 PM / 5 months ago

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

 (Updates with closing prices; adds analyst quotes)
    By Sruthi Shankar
    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 %
 MSCI Emerging Markets       974.04    -0.99
 MSCI LatAm                 2541.71    -1.04
 Brazil Bovespa            99719.06     -0.9
 Mexico IPC                41815.95    -0.69
 Chile IPSA                 4721.78    -1.06
 Argentina MerVal          23094.79  -11.837
 Colombia IGBC             12630.61    -0.05
      Currencies           Latest    Daily %
 Brazil real                 4.1780     0.09
 Mexico peso                20.0017     0.69
 Chile peso                   725.5    -0.10
 Colombia peso              3440.73    -0.09
 Peru sol                     3.404     0.03
 Argentina peso             55.9000     5.55
 (Reporting by Sruthi Shankar and Agamoni Ghosh in Bengaluru;
Editing by Leslie Adler)
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