Latin American currencies appreciated against the US dollar and stocks rose on Friday as yield-hungry foreign investors put their money to work in emerging market assets - deemed high risk. Appetite for emerging market assets has increased as rising optimism that the global economy is over the worst of the recession buoyed demand for riskier securities.
The US dollar plunged to five-month lows against a basket of six major global currencies and thus supporting most of its pairs in Latin American. In early afternoon trading in New York, the dollar index was 1.4 percent lower at 79.420, having earlier hit 79.372, its lowest since mid-December.
It is now down more than 6 percent for the month, on track for its biggest monthly fall since 1985. Brazil's real strengthened 1.98 percent to 1.970 per US dollar, crossing the psychologically important 2-per-dollar mark for a second session in three. The currency soared 10.4 percent in May, the biggest monthly rally since April 2003.
Colombia's peso gained 2.04 percent to 2,131.55 per dollar before the central bank board made another 100 basis point cut to bring its key interest rate to 5 percent. The peso has appreciated more than 18 percent since the lows in February when the peso weakened to more than 2,600 against the dollar.
The Mexican peso was 0.43 percent higher at 13.192 per dollar giving up some earlier gains after the central bank said it would trim sales of Mexico's dollar reserves. Mexico's currency and economy, which are tightly linked to that of the United States, will depend on improvements in the US economy. Latin American stocks rose as the Morgan Stanley Capital International's Latin American stock index gained 1.54 percent to 3,046.29 reaching an 8-month high.
Brazil's Bovespa index however, was down 0.6 percent, weighed by concerns on Wall Street over the looming bankruptcy of automaker General Motors Corp and data showing much deeper-than-expected business activity slump in the US Midwest. Peru's IGRA stock commodity-heavy index, rose 2.75 percent supported by a rise in the US dollar, making commodities priced in the US unit more attractive.
Emerging market sovereign debt spreads, the premium that investors demand for holding riskier bonds than US Treasuries, widened 10 basis points to 456 basis points above comparable US Treasuries, according to J.P. Morgan's Emerging Markets Bond Index Plus.