Latam stocks, FX rally as growth slowdown fears ease slightly

Latin American currencies and stocks joined a global rally on Thursday as surprisingly upbeat economic data from the United States and China allied with hints that Beijing will step in to limit losses in the yuan, to ease growth worries for now.

Brazil's real firmed more than 1%, while Mexico's peso rose almost as much against a slightly firmer dollar. Colombia's peso surged 2.3% on coming back after a day's holiday, and was set for its best session in two months.

Most regional stock markets also rose, between 0.1% and 2%, with those in Brazil and Mexico on course for their third straight day of gains.

Data on Thursday showed that in China, trade was stronger than expected in July, while in the United States, the number of Americans filing applications for unemployment benefits last week unexpectedly fell, pointing to a robust US labour market.

The data sets allayed some fears that a bruising trade war between the two countries would tip the world into a recession. That tied in with China's yuan firming against the dollar as its central bank signaled it could step in to plug the currency's fall.

As worries about the trade war and its consequent impact on reach a fever pitch, markets worldwide have seen volatile sessions, with Latam markets being no exception.

In Mexico, data showed annual inflation rate slowed for third month, keeping alive chances of a rate cut at the central bank's meeting next week.

However, TD Securities sees the bank holding steady on rates at the August meeting, and expect to see dovish tilts in the statement.

Their call remains for a cut in the first quarter of next year, but should the next two months of inflation data show core dynamics and inflation expectations better contained, they see a potential for cuts late this year.

Rating agencies added to Latam's dour outlook, with Moody's saying higher costs and trade tensions are undermining Mexico's growth prospects, while Fitch said significant challenges still remain for Brazil and more reforms besides a far-reaching pension reform are needed to stabilize the government's debt burden.

Higher copper prices supported Chile's currency as well as stocks which rose 2% and were set for their best day in nine months. Copper is Chile's main export.