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ECB limits gains for risky Latam assets; banks weigh on Bovespa

(Updates with market close) By Sruthi Shankar July 25 (Reuters) – Latin American currencies and stocks mirrored weakness in risky assets globally on Thursday after the European Central Bank Chief Mario Draghi toned down expectations of aggressive monetary policy easing. The ECB left interest rates unchanged after its policy meeting, but signaled rate cuts ahead, initially supporting risk sentiment. However, Draghi sounded more upbeat on the economy than investors had expected and said policymakers had not discussed rate cuts. “Rates and risk markets have completely reversed the initial exuberance, which is likely due to the lack of details in Draghi’s press conference,” Mohammed Kazmi, portfolio manager at UBP, wrote in a note. “We are used to Draghi delivering a dovish message, which meant that the bar was high for risk and rates markets to rally further, given pre-positioning into the meeting.” Emerging market assets, which typically gain on bets of interest rate cuts from developed world central banks, fell. Brazil’s real edged lower, while the Bovespa stock index slumped over 1.5% due to weakness in heavyweight banking shares. Shares in Banco Bradesco SA, which surged to record highs this year, fell nearly 6% even as the lender reported better-than-expected quarterly profit. Petrobras fell nearly 2%, despite gaining oil prices, as Brazil’s top court ordered the state-run oil company to refuel two Iranian grain vessels stranded on the Brazilian coast. Petrobras had denied service, citing the risk of consequences from U.S. sanctions. A bright spot among stocks was brewer Ambev, up 9% after posting better-than-expected quarterly results. Data showed Brazil posted a current account deficit of $2.9 billion in June, the biggest shortfall since January and almost twice as wide as the $1.5 billion deficit median forecast in a Reuters poll. Brazil’s economy is struggling to emerge from a crippling recession, with the government focused on passing through Congress a pension overhaul that it hopes will prop up public finances and kick-start growth. Mexican stocks were weighed down by Cemex , which slid about 3% after it posted downbeat earnings that were hurt by lower volumes amid trade conflicts. The Mexican peso, however, held steady after data showed retail sales rose 2.8% in May, topping market expectations – an encouraging sign after weak recent data sparked recession fears for Latin America’s No. 2 economy. The Argentine peso fell over 1%, hit by political uncertainty ahead of presidential election later this year. Latest polls show President Mauricio Macri is neck-and-neck with main Peronist rival Alberto Fernandez in polls ahead of elections in October. Key Latin American stock indexes and currencies at 2000 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1053.11 -0.21 MSCI LatAm 2855.05 -1.57 Brazil Bovespa 102435.88 -1.62 Mexico IPC 40964.49 -0.49 Chile IPSA 4981.02 0.24 Argentina MerVal 39774.36 -0.03 Colombia IGBC 12950.05 0.27 Currencies Latest Daily % change Brazil real 3.7826 -0.37 Mexico peso 19.0400 0.05 Chile peso 696 -0.83 Colombia peso 3215.9 -0.55 Peru sol 3.296 -0.06 Argentina peso (interbank) 43.3700 -1.08 (Reporting by Sruthi Shankar and Agamoni Ghosh in Bengaluru; editing by Diane Craft)


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