Latam FX fall on virus worries; Brazil's real down 1%

Latin American currencies weakened against the dollar on Thursday, with Brazil's real and Chile's peso giving up early gains made on upbeat factory activity surveys, while oil major Petrobras rallied on raising $2.3 billion in a stake sale.

Manufacturing activity in Brazil hit four-month highs in June, PMIs showed, while Chile's economic activity jumped a better-than-expected 18.1% in May.

This follows disappointing activity numbers from Asia and Russia which dulled sentiment already dented by worries about rising coronavirus cases in many countries around the globe.

The real and Chile's peso dropped up to 1% each, with the peso giving up gains of as much as 0.7%. Mexico's peso fell 0.4%.

"We're more optimistic than most about the near-term economic outlook for Latin America, even though the region's prospects are still dimmer than elsewhere in the emerging world," said William Jackson, an emerging market economist at Capital Economics, citing strong activity numbers.

The end of the coronavirus pandemic in Latam "remains a distant future," the Pan American Health Organization said on Wednesday, with only one in 10 people fully vaccinated so far.

While cases have been falling in Mexico, COVID-19-related deaths likely exceed the confirmed toll by about 60%, the country's Health Ministry data released on Wednesday showed.

In Brazil, calls for the impeachment of President Jair Bolsonaro rose as findings of a probe into the government's handling of the pandemic led to the suspension of a $324 million COVID-19 vaccine procurement deal.

With a death toll over half a million, political tensions leaves questions about the sustenance of the real's rally, which saw it become the biggest emerging market gainer last quarter, up 13.4%, making a strong comeback from being the worst performer at the end of the first quarter.

The dollar fell ahead of US nonfarm payrolls data on Friday, which will be watched to see whether it would prompt the Federal Reserve to start tightening policy sooner than forecast.

But despite the Fed's hawkish tilt in its policy-setting committee's last meeting, foreign net flows to emerging market equity and debt portfolios accelerated in June to nearly three times the May figure, data from the Institute of International Finance showed on Thursday.

Among stocks, Brazil's Petrobras and fuel distributor Petrobras Distribuidora were the top gainers on Sao Paulo's Bovespa index, up 0.3% and 3.4% after the oil firm divested its full remaining stake of 37.5% in its former subsidiary.

Elsewhere, Belarus's rouble snapped a three-day losing streak against the dollar. Ratings agency S&P kept Belarus's rating unchanged after a review on Wednesday, saying European Union sanctions over Minsk's forced landing of a passenger plane weren't significant enough to change the picture of the country's finances.