Peru stocks up, govt calms

LIMA: Peru's stocks and currency gained sharply on Tuesday, trying to recover from steep drops the previous day after Standard & Poor's downgraded the US government's long term credit rating.

Lima's main equities index was up 3.68 percent at 19,419 points after plunging 7 percent on Monday as emerging market investors fled for safe havens like gold, cash and short-term bonds.

One local trader said Monday's sell-off on global recession fears was exaggerated."

The sol was bidding 0.26 percent firmer at 2.746 per dollar.

It was the only currency in the region that was gaining against the dollar, traders said because of a seasonal tax that lifted the demand for soles.

Finance Minister Luis Miguel Castilla said it was "too early" to consider an economic stimulus plan to shield Peru's economy from a global recession.

He said he hoped Monday's sell-off would be short-lived and that yield-hungry investors would pour back into emerging markets once volatility settles.

"What we are probably going to see is a lot of volatility, and then perhaps in a few weeks begin to have more tolerance for risk capital and those who have left return in search of returns," he said on TV late on Monday.

"Peru is a country that has strong fundamentals and going forward can be an attractive place."

Peru has record foreign reserves of nearly $50 billion and a fiscal cushion of several billion dollars that it says can be used as a rainy day fund.

Still, Castilla said slower global growth could pinch prices for base metals like copper that Peru exports, even as prices for its gold and silver soar.

"We believe that China will remain relatively stable, but definitely has entered a phase of lower growth in external demand because the world will grow less, and that in turn is reflected in a drop of our raw materials," Castilla said.

"The increase in the price of gold and silver is in some way going to compensate the fall in the price of copper and other metals at least in the short term."

He said Peru, which has been one of the world's fastest-growing economies, could see further moderation of demand.

"I think we're probably in a world of slower growth and that affects the growth prospects of our country," he said.

"Calculations we do show that if the world grows less (one) point that subtracts a point of growth from our country."

He said Peru's economy would grow around 6 or 6.5 percent in 2011, in line with the previous government's estimations. It expanded nearly 9 percent in 2010.

Copyright Reuters, 2011