Latin American financial markets succumbed to another Wall Street sell-off on Friday, with Brazil's benchmark stock index erasing nearly all of its February gains and Mexico's peso touching a record low.
The region had been able to withstand Thursday's steep losses on Wall Street, supported by rising oil and metals prices. But commodities declined on Friday as market fears that top US banks might need to be nationalised stoked global investors' aversion to risk.
"We are hostage to the uncertainty regarding US banks," said Augusto Farina, a trader with Amirante Galitis brokerage in Buenos Aires. Yield spreads between emerging-market bonds and US Treasuries, a key gauge of risk aversion, widened 8 basis points to 662 basis points, according to the J. P Morgan EMBI+ index.
The MSCI stock index for Latin America tumbled 4.76 percent, after gaining 0.8 percent on Thursday. In Brazil, investors were extra cautious ahead of the Carnival holiday, which will keep financial markets closed Monday and Tuesday. The Bovespa index closed 2.56 percent lower at its lowest level since February 2 while the real lost 1.67 percent to 2.392 per dollar.
Mexico's decision to cut interest rates by a modest 25 basis points, less than the 50 basis points widely expected by economists, was seen by investors as a sign that the government has limited resources to fight a worsening recession this year. Mexican financial markets, also hit by the Wall Street sell-off, tanked as a result. The benchmark IPC stock index fell 1.92 percent to a three-month low.
The peso slid to near 15 per dollar during the trading session, forcing the central bank to sell dollars directly to banks. Even after the intervention, the currency ended 1.22 percent weaker, at 14.80 per greenback, its lowest closing level since new pesos were introduced in 1993.
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