Emerging Stocks Gain on G-7 Yen Intervention, Libya Cease-Fire

Emerging-market stocks rose, paring a weekly decline, as the Group of Seven nations moved to shore up Japan’s economy and Libya declared a cease-fire.

The MSCI Emerging Markets Index climbed 0.8 percent to 1,099.61 at 12:38 p.m. in New York, bringing its retreat this week to 0.8 percent. Hungarian forint and the South African rand led currencies higher against the dollar, while the extra yield investors demand to own emerging-market debt over Treasuries fell 7 basis points to 274, according to JPMorgan Chase & Co.’s EMBI+ Index.

Benchmark equity indexes in Brazil, South Korea and Taiwan rose more than 1 percent after G-7 nations jointly intervened in the foreign exchange market for the first time in a decade, aiming to weaken the yen to bolster Japan’s recovery from the March 11 earthquake. Libya is ceasing all military action and will start talks with the opposition, Libyan Foreign Minister Moussa Koussa said in a televised news conference carried by Al Arabiya TV.

“This intervention in the yen gives breathing room in the currency and equity markets,” Kirby Daley, a Hong Kong-based senior strategist with Newedge Group’s prime brokerage business, said in an interview with Bloomberg Television. “It gives a floor under the markets.”

G-7 Intervention

The MSCI emerging-market index has fallen 1.4 percent since March 10, the day before an earthquake struck Japan, the world’s third-largest economy. Engineers plan to work into the night to restore power to two of the crippled reactors at Japan’s damaged Fukushima Dai-Ichi power plant, a step that may improve the odds that a nuclear meltdown can be averted. Japan’s Nikkei-225 Stock Average rallied 2.7 percent today, paring its retreat since March 10 to 12 percent.

The yen fell 2.8 percent against the dollar and weakened 4.3 percent against the rand. G-7 finance chiefs said in a joint statement they will “provide any needed cooperation” with Japan. South Korea’s Kospi Index rose 1.1 percent as the won strengthened 0.8 percent against the dollar, while Taiwan’s Taiex Index increased 1.4 percent.

Turkey’s ISE National 100 Index gained 0.6 percent, reversing an earlier decline of as much as 1.4 percent. Oil fell as much as 1.1 percent after the announcement by Libya, holder of Africa’s largest crude reserves, and was up 0.1 percent to $101.50 per barrel. Russia’s ruble climbed 0.6 percent against the dollar.

China Reserve Hike

France and Britain had begun preparing for strikes against Libya after the UN Security Council authorized the use of force to protect civilians.

The iShares FTSE China 25 Index Fund, an exchange-traded fund that holds Chinese stocks, fell 0.3 percent in New York trading. The proportion of Chinese lenders’ deposits that must be parked with the central bank will increase half a percentage point from March 25, the People’s Bank of China said on its website today. The requirement will rise to 20 percent for the nation’s biggest banks, excluding any extra limits for individual lenders.

Bahrain’s credit rating was cut two levels at Standard & Poor’s as the government struggles to quell more than a month of protests that have left about a dozen people dead.

The country’s long-term foreign-currency credit rating was reduced to BBB, the second-lowest investment grade, from A-, S&P said in a statement today. The outlook for the rating is negative, indicating that more downgrades may follow. Bahrain was cut to an equivalent level by Fitch Ratings on March 15.

Mexico Downgrade

Credit-default swaps tied to Bahrain’s bonds rose to 345.25 basis points from as low as 337.75 basis points earlier in the day, according data provider CMA. The contracts are down from yesterday’s close of about 351 points.

Mexican stocks were downgraded to “underweight” from “neutral” at JPMorgan Chase & Co., which cited “poor” earnings and fewer positive surprises from U.S. economic growth. The country’s benchmark IPC Index dropped 0.2 percent.

Argentina was removed from JPMorgan’s recommended Latin America stock portfolio on “fading” economic growth and political change, Ben Laidler, JPMorgan’s New York-based Latin America strategist, wrote in a research report today. Brazil remain’s the “top pick” in the region, Laidler wrote.

Chile’s benchmark IPSA Index fell 0.9 percent and the peso rallied after the five-member policy board, led by bank President Jose De Gregorio, raised the overnight rate by a half-point to 4 percent yesterday, surprising 19 of 22 economists surveyed by Bloomberg who expected a quarter-point increase for the second straight month.

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