Brazilian stocks shrugged off global jitters on Friday, climbing to a more than 10-month high on bets the central bank will slash its key interest rate deeper into the single digits than expected. Brazil's President Dilma Rousseff vowed on Thursday to protect local industry from a so-called "currency war," raising expectations the country's central bank could back up the president with even bigger cuts to borrowing costs.
"The market started to move in direction that the central bank could also embark in that direction and cut more aggressively to fight the exchange rate appreciation," said Marcelo Soloman, an economist at Barclays Capital in New York. Lower interest rates can undermine the attraction of fixed-income assets to yield-hungry investors. However, lower borrowing costs can support growth, which makes stocks more attractive. "You could see more flows on the equity side," Soloman said. The market had eyed cuts in the country's benchmark rate to 9.5 percent this year, but now some are expecting a rate as low as 8.5 percent.
Brazil's Bovespa index rose even as US stocks slipped, adding 1.45 percent to 67,781.60 and closing out a weekly gain of 2.8 percent. Shares of builders and banks, whose profits would rise on lower benchmark interest rates, rose. Property developer PDG Realty gained 3.58 percent and Itau Unibanco, Brazil's largest non-government bank, added 1.34 percent.
State oil firm Petrobras gained 1.69 percent after Goldman Sachs raised its 12-month price target for the stock, citing a potential domestic fuel price increase, upcoming production and cheap valuations. The MSCI Latin American stock index edged up 0.2 percent as it posted its third straight weekly rise, adding about 1.4 percent for the week.
The MSCI index is up almost 20 percent so far this year after a second package of rescue funds for Greece and more than a trillion euros of cheap loans for Europe's banks since late last year eased concerns about the continent's debt crisis. However, there were some signs of a new round of worries about Europe after Spain said it would fail to comply with Europe's new fiscal pact.
Mexico's IPC index rose 0.77 percent to 38,327.43, closing at its highest since January 2011, with a weekly gain of 1 percent. The index had remained mostly rangebound between 37,700 and 38,300 points during February. Mexican stocks held up better than Brazil's last year, when the Bovespa lost 18 percent. But Mexico is now lagging the surge in Brazilian stocks.
Spain's move to set a softer deficit target for itself threw into question the credibility of Europe's fiscal agreement, designed to increase confidence in the troubled currency zone. Top retailer Wal-Mart Mexico r ose 3.34 percent to a record high ahead of sales data for February due next week. Chile's IPSA index dipped 0.16 percent as industrial conglomerate Empresas Copec fell 1.17 percent.
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