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Emerging Markets-brazil Real Gains Past 2/dlr, Mexico Peso Falls

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The Brazilian real on

Monday strengthened past the level of 2 per dollar for the first

time in over one month on expectations of additional central

bank intervention, while the Mexican peso fell after

unexpectedly weak U.S. manufacturing data.

The real gained 1.0 percent to 1.9897 per

dollar as investors took Brazil's strong currency interventions

last week as a sign that policymakers will not allow the

exchange rate to depreciate much further.

Brazil's central bank last week eased rules on export

prepayment and sold 180,000 currency swaps worth $9 billion in

three auctions. While the first measure allows more dollars to

flow into the country, the swap auction boosts the supply of

greenbacks in the futures market.

"The market today is reflecting what happened last week: the

central bank intervened heavily with those three auctions, and

that calmed markets down," said Joao Medeiros, a director at

Pioneer brokerage in Sao Paulo.

Medeiros added that the level of 1.9 reais per dollar could

become the new ceiling for the currency if Europe's financial

situation does not deteriorate further.

In Mexico, however, the peso weakened 0.6 percent

after economic data in the neighboring United States showed the

manufacturing sector unexpectedly contracted in June, weighing

on prospects for the Mexican economy. The

United States accounts for most of Mexico's exports.

The peso had been little changed early in the session after

presidential front runner Enrique Pena Nieto claimed victory in

Sunday's elections, as analysts said the recent optimism with

the reforms he has pledged to carry on could vanish soon.

"There are perhaps some early indications that the

(election) result may fail to fully meet the market's greatest

expectations," David Rees, emerging markets economist with

London-based Capital Economics, wrote in a research note.

He mentioned concerns that Pena Nieto's coalition could fall

short of securing a majority in Congress when the full results

of the elections are announced on Wednesday.

"At best that could cause reforms to be watered down, at

worst it could lead to a continuation of the political deadlock

that has stalled reform during the PAN's twelve-year stint in

the presidency," Rees added, referring to the political party of

outgoing president Felipe Calderon.


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