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Currencies pop as dollar slides after U.S. data

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Emerging market currencies rallied on

Tuesday, erasing session losses as the dollar slid after

datasignaledd the U.S. economy might be cooling, tempering bets

of a large interest hike by the Federal Reserve next month.

Latin American currencies led the charge, with Brazil’s real

jumping 1.4%, while Mexico’s peso looked set for its best

session in two weeks.

The dollar, which at more than a one-month high amid

recession worries had pressured riskier currencies earlier on

Tuesday, dropped 0.6% after data showed U.S. home sales fell in

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July and private sector activity contracted again in August.

This weakened bets for a third consecutive 75-basis-point

rate hike by the Fed at its Sept. 20-21 meeting. Earlier this

week, Fed officials called for the central bank to speed up its

monetary policy tightening, dulling risk appetite.

“Much weaker than expected data is suggesting that the U.S.

economy may be contracting much faster than the market

anticipated and that is going to lead to a much more neutral Fed

stance,” said Boris Schlossberg, managing director at BK Asset

Management.

“The market was in this mode of the Fed absolutely,

resolutely hiking 75 basis points and now there is a much

greater doubt of that. U.S. yields came in and killed the dollar

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because it was so grossly overbought, and everything against a

dollar just popped.”

South Africa’s rand reversed session losses to jump

0.3%, as did several Asian currencies, with China’s yuan

rising 0.2% after hitting two-year lows.

Chile’s peso moved decidedly away from its weakest

level in one month, surging 1.0%, as the currency was also

bolstered by rising copper prices. Crude exporter Colombia’s

currency rose 0.5%.

Central and eastern European currencies, however,

underperformed, pressured by economic growth worries amid doubts

about Russian gas supplies.

Hungary’s forint lost 1.1%, hitting six-week lows.

Among stocks, MSCI’s index of EM stocks had hit

three-week lows as Asian stocks sold off amid China growth

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slowdown fears.

But an equities recovery in emerging Europe, Middle East and

Africa capped losses, and gains in Latam stocks further reduced

those losses as a labored rise in U.S. stocks and rising

commodity prices helped.

Brazil’s Bovespa index jumped 1.6%, with miners and

energy stocks leading gains as oil, copper and iron ore prices

rose.

Meanwhile in Cuba, the government announced on Monday it

would begin exchanging dollars and other foreign currency for

the local peso on a limited basis after a two-year hiatus during

which residents turned to an informal money market for the cash.

Key Latin American stock indexes and currencies at 1452 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 990.41 -0.15

MSCI LatAm 2226.66 2.71

Brazil Bovespa 112262.34 1.59

Mexico IPC 48167.26 0.31

Chile IPSA 5359.96 0.36

Argentina MerVal 135076.71 2.135

Colombia COLCAP 1306.63 1.03

Currencies Latest Daily %

change

Brazil real 5.0915 1.41

Mexico peso 19.9988 0.67

Chile peso 927.9 0.97

Colombia peso 4370.95 0.50

Peru sol 3.8494 0.51

Argentina peso 136.8700 -0.16

(interbank)

(Reporting by Susan Mathew in Bengaluru; Editing by Paul Simao)

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