MercoPress. South Atlantic News Agency

Latinamerican markets collapse.

Latinamerican financial markets and currencies this Monday kept sliding as they did towards the end of last week given investors fears of a rise in United States interest rates.

Brazil was the country most affected with the local currency breaking the psychological barrier of 3 Reales to the US dollar, the largest depreciation in a year.

The Mexican peso also reached a historic 11,68 pesos to the US dollar and the Chilean peso fell to its lowest in six months.

Similarly stock exchanges in the area dropped significantly: the Sao Paulo Bovespa index fell 4,6%; Mexico 3%; Chile 2,2% and Buenos Aires 7%.

"There's an urge in investors to get out before any Federal Reserve decision", said Arturo Porcekansky an emerging markets analyst. For over a year investors frustrated with the low return of US bonds had been turning to emerging markets papers, "but now they want out", added Mr. Porcekansky. "Higher US rates will make high risk assets less attractive".

US financial markets were expecting the Federal Reserve to raise interest rates, (which at 1% are at their lowest in over forty years) in August but the surprising jump in the April employment report and signs of underlying inflation could advance the date to the meeting of June 29/30.

"I believe the weakness of emerging markets will continue with a strong demand for US dollars", indicated Jose Medero a Montevideo market analyst.

However Brazilian expert Alexandre Vasarhelyi said that "I think we've seen the worst possible scenario if US rates are increased. But the area's currencies will follow what happens worldwide, we're not isolated, even the Euro is loosing ground against the US dollar".

Mr. Vasarhelyi also recalled that the Fed anticipated it will be raising rates but "gradually" possibly reaching 2% by the end of the year.

The whole week is expected to be quiet volatile since next Friday the US April inflation index will be made public.