(Corrects direction and magnitude of Brazil currency move)
* Emerging market stocks up 10.23 percent, spreads narrow
* Analysts still worried about medium-term outlook
* Mexico and Colombia keep rates unchanged
By Isabel Versiani
NEW YORK, Sept 19 (Reuters) - Emerging market stock and
bond prices rebounded strongly on Friday on global optimism
over a U.S. government plan to rescue financial markets.
Despite the positive reaction, analysts were cautious about
the economic outlook for emerging markets in the medium term
given an expected slowdown in global growth.
Yield spreads between emerging market bonds and U.S.
Treasuries, an important gauge of investors' aversion to risk,
narrowed by 66 basis points to 353, and total returns rose 1.81
percent, according to the benchmark JP Morgan Emerging
Markets Bond Index Plus <11EMJ><.JPMEMBIPLUS>.
The MSCI emerging market stock index <.MSCIEF> surged 10.23
percent, bouncing from Thursday's two-year low.
"The recent measures announced by the U.S. Treasury and the
Fed have provided the markets with some confidence that the
situation might stabilize, and to that extent people are
calmer. We see the rebound across all assets now," said Benito
Berber, Latin America strategist at RBS in Stamford,
Connecticut.
U.S. officials announced Friday they are working on a
solution to take over hundreds of billions of dollars worth of
bad mortgage debt.
The government also curbed short-selling in the stock
market and said it will use $50 billion to back money market
mutual funds. (For more details, please see [ID:n19354746].)
The measures came at the close of a week that saw the
bankruptcy of Lehman Brothers Holdings <LEH.N>, the hurry-up
wedding between Merrill Lynch <MER.N> and Bank of America
<BAC.N>, and the government bail-out of insurance giant AIG
<AIG.N>.
Worries over a collapse of the financial system had scared
investors away from risky emerging market assets. On Wednesday,
the JPMorgan EMBI+ index reached 428 basis points, the widest
since October 2004, and stock markets throughout Latin America
plunged.
On Friday, the MSCI Latin America stock index soared 10.26
percent <.MILA00000PUS>.
In Brazil, the region's leading economy, stocks went up
9.28 percent <.BVSP>. The real, Brazil's currency, posted its
biggest gain since August 2002, rallying 5 percent after the
central bank sold $500 million in dollar repurchase agreements
to supply the market with liquidity. The real <BRBY> closed up
4.74 percent at 1.83 per dollar.
"The situation clearly improved compared to yesterday
morning. At the same time I would say a number of risks remain.
It is clear that global growth is likely to slow down more than
what was thought a week ago, before the Lehman default and all
these bail-outs," said Igor Arsenin, emerging markets debt
strategist at Credit Suisse in New York.
"Volatility is likely to continue into next week because
the resolution of this crisis is likely to be kind of slow," he
added.
RBS's Berber also predicted a deterioration of emerging
market fundamentals due to a global slowdown.
Some central banks in the region kept interest rates
unchanged on Friday.
Colombia's central bank left its key interest rate
at 10 percent on Friday and said the economy was growing more
slowly than expected.
Mexico held rates steady at 8.25 percent. "Risks to a drop
in economy activity has accelerated," Mexico's central bank
said in a statement.
(Editing by Leslie Adler and Carol Bishopric)
(([email protected]; 5561 3426-7024; Reuters
Messaging: [email protected]))
Keywords: MARKETS EMERGING/