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Latam FX recover from tumble as China eases currency war fears

(Updates prices) By Susan Mathew Aug 6 (Reuters) – Latin American currencies made a strong comeback on Tuesday after days of losses as some fears of a worsening in trade tensions between the United States and China were allayed after China stepped in to stabilize its currency. Major Latam currencies rose between 0.3% and 0.9% against a stronger dollar as some risk appetite returned after China set a higher-than-expected fix for its currency. This assuaged investors who feared Beijing would let its currency slump to tackle further tariffs threatened by the United States, turning their trade war into a currency war. Brazil’s real rose half a percent, on track to end a six-session losing streak, and Mexico’s peso rose for the first time in five sessions, while Colombia’s peso recovered from all-time lows. The recovery comes after trade tensions escalated last week when U.S. President Donald Trump abruptly ended a truce period by threatening a 10% tariff on the remaining $300 billion of Chinese imports, sending markets worldwide into a tizzy. Emerging market currencies had hit their 2019 lows on Monday when China’s yuan was allowed to slip below its 7 per dollar level. “Gradually we think that USDCNY might reach 7.15-7.30, assuming that the trade-weighted yuan were to depreciate by a further 3-5%,” analysts at Morgan Stanley analysts wrote in a note. Regional stocks rose after five days of losses, with Sao Paulo-traded stocks leading with an almost 2% jump. Minutes from the Brazilian central bank’s last meeting, when it cut interest rates by 50 basis points, reaffirmed the view that there is more room for monetary adjustment with economic growth staying stable or growing only slightly in the second quarter. “Markets are already pricing in almost 75 basis points (cuts) into year-end, so further cuts should not come as a surprise,” Morgan Stanley analysts wrote. Hamburger producer Marfrig Global Foods was the biggest gainer on Brazil’s main index after it said it reached an agreement with U.S.-based agribusiness company Archer Daniels Midland to produce and market vegetable protein products in Brazil. Argentine and Mexican shares also rose, almost 1%, breaking five straight days of declines. Key Latin American stock indexes and currencies at 1906 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 973.06 0.01 MSCI LatAm 2701.81 1.45 Brazil Bovespa 102008.44 1.91 Mexico IPC 39859.58 0.91 Chile IPSA 4790.02 0.2 Argentina MerVal 41298.78 1 Colombia IGBC 12381.56 1.06 Currencies Latest Daily % change Brazil real 3.9563 0.55 Mexico peso 19.5541 0.28 Chile peso 715.9 0.64 Colombia peso 3425.48 0.80 Peru sol 3.375 0.33 Argentina peso 45.2900 0.44 (interbank) (Reporting by Susan Mathew in Bengaluru; Editing by Dan Grebler)

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