Latam stocks up, Argentine peso closes up before Fitch downgrade

Most Latin American stocks rose on Monday, joining a rebound in global markets on hopes of fiscal and monetary stimulus in major economies, while Argentina was handed a fresh blow as Fitch downgraded its credit rating, pushing it deeper into junk territory.

Stocks in the region, besides those in Argentina, gained between 2% and 0.4% as fiscal stimulus hopes from Germany and China to support growth, and rising possibility of an interest rate cut by the European Central Bank, lifted global sentiment plagued by recession worries.

Meanwhile, the Argentine peso closed Friday up 4.4% in a second day of strong gains, lifted by the government's attempt to calm markets via relief measures and collaborations with opposition as well as central bank interventions.

But after peso trading hours, credit rating agency Fitch downgraded Argentina to 'CCC' from 'B' citing heightened risk of policy discontinuity and greater likelihood of a default should there be a change in administration after October general elections.

"I don't think it should have a meaningful nor lasting effect on investors' perception of Argentina's sovereign risk," Alejo Czerwonko, emerging markets strategist at UBS Global Wealth Management's Chief Investment Office.

"The market has been reassessing the country's probability of default since the primary elections on Sunday and I don't think the publication provides information that investors didn't have already."

The peso lost a around a quarter of its value to the dollar three days after a shock victory by the opposition in presidential primaries raised fears of a return to populist policies under opposition candidate Alberto Fernandez, should he win.

A similar move by Moody's and Standard and Poor should not come as a surprise, he said.

Argentine stocks steepened losses to hit session lows after the announcement and closed 2.1% lower, taking the week's losses to 31.5% - its worst week ever.

Mexico's peso 0.2% to 19.6475 a day after the central bank cut its key interest rate by 25 basis points to 8%. Mexico's President Andres Manuel Lopez Obrador on Friday said the cut will stimulate the sluggish economy.

But "we see little upside for MXN in the months to come as Banxico will very likely feel comfortable cutting rates on a potential decline of USDMXN towards 19," said Morgan Stanley analysts in a note.

"The shift towards yield curve behaviour and the language around core suggest to us that Banxico will try to avoid being behind the curve, which presents a meaningful change."

Brazil's real fell 0.3% after 1.5% surge last session when the central bank announced its decision to sell dollars on the spot market for the first time in a decade. Analysts say this is a sign the bank is finally willing to reduce its $385 billion pile of foreign exchange reserves.