Mexico rallies on preliminary election results

By Reshmi Basu and Paul A. Harris

New York, July 3 - Emerging market debt saw higher prices Monday on news that conservative Felipe Calderon had a narrow lead in the highly contested Mexican presidential election, according to the latest uncertified results.

The Mexican presidential election between Calderon and left-of-center Andres Manuel Lopez Obrador appear to be neck and neck. With the election too close to call, election officials have decided to recount all the votes before declaring the winner. The recount is expected to start on July 5.

Early returns show Calderon leading with 36.36% over Obrador's 35.39%. That early return was posted with 97.6% of the votes counted.

Nevertheless both candidates have already proclaimed themselves to be winners.

Mexico's financial markets have closely tracked the news, according to a trader, who added that local markets rallied on the news that investor favorite Calderon holds a small 1% margin of victory.

The peso had traded a solid 11.26 USD/MXN before the Federal Electoral Institute's decision to postpone the election results, according to a market source. Following that decision, the peso traded at around 11.52. However, after the preliminary count, the peso rallied, trading at around 11.23. Meanwhile the Mexican Bolsa gained more than 700 points Monday.

"The markets saw a relief rally," observed a trader.

With trading in global markets, muted a source said that the impact of deadlock will likely not be apparent until trading volume begins to pick up on Wednesday, following the July 4th Independence Day holiday in the United States.

During the session, the Mexican bond due 2026 surged 2.50 to 148.50 bid. 150 offered while the bond due 2034 added 1.50 to 98.50 bid, 99 offered.

Meanwhile Brazil also saw an uptick in prices. Brazilian economists reduced their forecasts for 2006 inflation to 3.98% from 4.04% in the previous week, according to a central bank survey.

This helps build the case that the central bank will continue to cut interest rates amid a benign inflation backdrop, according to an analyst.

The Brazilian bond due 2040 added 0.75 to 124.65 bid, 124.75 offered.

And Turkey also rallied. The Turkish bond due 2030 gained 2.38 to 139.375 bid, 129.875 offered.

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