Latin American markets were only modestly hurt on Friday by a jump in the US unemployment rate, as investors resisted selling high-yielding assets on bets economic growth is accelerating in the region. US employers cut a higher-than-expected number of jobs in October and the unemployment rate rose to a 26-1/2-year high of 10.2 percent, suggesting the world's largest economy will take time to fully recover from the crisis.
But investors said the economic reality in Latin America is very different, with fast economic growth spreading from Brazil to other countries in the region. "Brazil printed blazing 7.85 percent quarter-on-quarter growth in the second quarter and is likely to slow down just a bit, to pass along the baton to Mexico or Chile, which appear set to take off with significant growth," Barclays Capital's economists wrote in a research note.
"After them, the baton may be passed to Colombia and perhaps Argentina, if its transaction with holdouts succeeds," they added. The MSCI stock index for Latin America edged 0.34 percent lower in the afternoon after declining as much as 1.65 percent in the morning.
The Brazilian Bovespa index declined 0.41 percent after three winning sessions, while the Argentine MerVal lost 0.87 percent. Mexico's IPC, on the other hand, gained 0.41 percent. Latin American currencies were mixed. The Mexican peso posted the largest losses in the region, still pressured by ongoing fears of credit rating downgrades following the approval of a tax reform that did not do much to reduce the country's reliance on waning oil revenues.
The Mexican currency was 0.74 percent weaker at 13.384 per US dollar, putting it on track for losses of more than 1 percent this week. But the Brazilian real strengthened for the fourth consecutive session, fuelling a local debate about whether the government should come up with more measures to curb the appreciation of the currency and protect exporters.
The real ended 0.17 percent stronger at 1.719 per dollar, with weekly gains of about 2 percent. Last month, the Brazilian government imposed a 2 percent financial tax on foreign inflows to reduce "speculation" in the currency market. "The market has already absorbed the 2 percent (tax)," said Reginaldo Galhardo, currency trader at Treviso brokerage in Sao Paulo.
The Colombian peso lost 0.19 percent to 1,984.30 after minutes of the central bank's latest monetary policy meeting signalled interest rates will remain at the current 4.0 percent level for a considerable amount of time. In the minutes, the central bank said it is concerned about domestic lack of credit and its impact on the economy.
"The language in the minutes is relatively dovish with the central bank concerned that domestic financial conditions are not easing and the fact that activity failed to show any significant signs of a turnaround during the third quarter," Goldman Sachs senior economist Alberto Ramos said in a report.
"In our assessment, the central bank is unlikely to hike rates in the near future. We do not expect the interest rate normalisation cycle to start before the second half of 2010," he added. Latin American sovereign bond prices rose, with the Brazilian global bond due 2040 gaining half a point in price to 133.688. Still, a rally in US Treasuries caused the spreads of emerging market bonds to widen 5 basis points to 321 basis points, the J.P. Morgan EMBI index showed.