Latin American Markets Rebound

Latin American financial markets rallied sharply Tuesday, snapping back from their recent steep decline fueled in part by worries about higher U.S. interest rates.

Mexico’s main share index, the IPC, jumped 207.53 points, or 2.2%, to 9,648.10, and the peso recovered slightly after falling to a record low against the U.S. dollar on Monday.

In Brazil, the Bovespa stock index surged 932.50 points, or 5.3%, to 18,536.62. Argentina’s key index, the Merval, rose 34.14 points, or 3.7%, to 955.86.

All three stock markets had been hammered in recent weeks as some investors fled, fearing the potential effects of rising U.S. interest rates.

Stocks, bonds and currencies of so-called emerging markets worldwide have been hit hard.

Higher rates could slow the American economy, depressing demand for other countries’ exports. What’s more, global investors might be more inclined to buy U.S. bonds as their yields rise, siphoning money away from emerging-market securities.

Brazilian government bonds led a broad rally in emerging-market bond prices worldwide Tuesday, after several sessions of heavy losses.

The price declines of emerging-market bonds, which drove their yields up, “had gone way too far,” said Mohamed El-Erian, who oversees $14 billion in emerging-market debt at Pacific Investment Management Co. in Newport Beach. He said he was a buyer on Tuesday but declined to give specifics.

The share price of the Pimco Emerging Markets Bond mutual fund, managed by El-Erian, plunged from $10.75 on April 1 to $9.32 on Monday, a drop of 13.3%. The shares rose to $9.43 on Tuesday.

Latin American stock markets remain well below their recent highs. Mexico’s IPC reached a record 10,844.03 on April 12, then slumped 12.9% through Monday.

Brazil’s Bovespa, which was at 24,349.78 on Jan. 26, fell 27.7% through Monday.

By contrast, the U.S. Standard & Poor’s 500 index lost 6.1% from its 2004 high, reached on Feb. 11, through Monday.

Most emerging markets far outpaced U.S. stocks last year. The Mexican market rose nearly 44% and Brazil’s market jumped 97%, compared with a 26.4% rise for the S&P; 500.

In Mexico, concerns about the economy and about potential higher inflation have driven the peso to record lows. One dollar bought 11.68 pesos on Monday, up from 11.22 at the start of the year and 10.15 a year ago. The peso improved somewhat to 11.59 per dollar on Tuesday.

Interest rates on Mexican government bonds have been rising, anticipating that the government will tighten credit to support the peso.