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EMERGING MARKETS-Latam stocks drop nearly 2% after hot U.S. inflation data, eye weekly declines

NEW YORK, FEB 24 (Reuters) - Latin American stocks extended declines sharply on Friday after further evidence of persistent U.S. inflation spurred fears of more interest rate hikes by the Federal Reserve, while regional currencies also dipped against a stronger dollar.

  • U.S. consumer spending rebounds in January
  • Brazil’s consumer prices rise more than expected
  • Mexico’s economic growth tops forecasts in Q4
  • Financial crime watchdog adds South Africa to ‘grey list’
  • Latam FX down 0.9%, stocks off 1.9%

MSCI’s index for Latin American equities fell 1.9% by 1453 GMT, and was headed for weekly declines of 2.3%. Data on Friday showed U.S. consumer spending rebounded sharply in January amid strong income growth, while inflation accelerated, supporting the case for the Fed to keep tightening monetary policy for longer.

“At the very minimum right now, the probabilities are quite high we’re going to have three more quarter-point rate hikes at the next three (Fed) meetings,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. Brazil’s Bovespa index dropped 1%.

Broader emerging market stocks fell 1.8% and were set to log their fourth straight week in the red, having lost momentum after a strong start to the year on fears of higher-for-longer rate hikes and geopolitical worries in the days leading up to the Ukraine war’s first anniversary.

“Inflation in the U.S. may not entirely mean price pressures elsewhere like last year, but Latam will emerge with less losses as their post-pandemic realities fare better than the Asia-European landmass affected by war and natural disasters,” said Juan Perez, director of trading at Monex USA.

Latin American currencies fell 0.9% as the dollar firmed, with the currency of the world’s biggest copper producer Chile down 1.4% and leading declines among peers as prices of the red metal fell. Chile’s peso was set for its biggest weekly fall since November last year.

The Brazilian real fell 1.1% after data showed its consumer prices rose by more than expected in the month to mid-February, with annual inflation remaining well above target.

However, in a bright spot, foreign direct investment in Brazil reached its highest level for January in five years, according to central bank data on Friday. Mexico’s peso edged 0.1% lower despite data showing the country’s economy grew 0.5% in the fourth quarter from the previous three-month period, slightly above forecasts.

Elsewhere in emerging markets, global financial crime watchdog FATF on Friday added South Africa to its “grey list” of countries under special scrutiny to implement standards to prevent money laundering and terrorism financing.


Reporting by Amruta Khandekar in Bengaluru; Editing by Shounak Dasgupta
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