Emerging Markets-US GDP boosts risk appetite; Ecuador debt jumps

By Walter Brandimarte

NEW YORK, Aug 28 (Reuters) - Emerging debt and equity markets gained on Thursday after a report showed the U.S. economy grew much more than expected in the second quarter, reducing fears that a global slowdown would hurt exports from developing countries.

Ecuadorean sovereign bonds outperformed peers after an official said the government's 2009 budget plan covers all public debt payments due that year, while yields on Mexico's local bonds fell as the central bank governor said the end of the current inflation episode is in sight.

Emerging equity and debt markets posted gains on news that the U.S. economy grew at a solid 3.3 percent annual rate in the second quarter, much above the initial reading of 1.9 percent from a month ago.

"The number was surprising. It reduces the possibility of recession" in the United States, said Ricardo Tadeu Martins, analyst with Planner brokerage in Sao Paulo.

Yield spreads between emerging markets bonds and U.S. Treasuries, a key gauge of risk aversion, tightened 7 basis points to 303 points on the benchmark JPMorgan EMBI+ index 11EMJ. Brazil's global bond due 2040 <BRAGLB40=RR>, the most traded of its asset class, gained 0.125 point in price to be bid 132.063, although traders said trading volumes were thin.

Latin American stock markets erased part of their gains later as a retreat in commodity prices hit stocks of bellwether energy and mining companies in the region. Morgan Stanley's MSCI stock index for Latin America .MILA00000PUS rose 0.3 percent, after jumping 1.6 percent earlier.

U.S. crude oil prices CLc1 fell more than $2 per barrel, driving the Reuters-Jefferies CRB index .CRB index of 19 commodities futures nearly 2 percent lower.

ECUADOR DEBT RALLIES

Ecuadorean spreads tightened 15 basis points to 727 basis points on the EMBI+ after Finance Minister Wilma Salgado told Reuters the official 2009 budget "of course" covers public debt obligations scheduled for next year. [ID:nN28287225]

Ecuador's global bond due 2030 <ECUGLB30=RR> gained 1.375 point in price to bid 87.688.

"It is encouraging that the government has contemplated these payments in the budget exercise for 2009," Lehman Brothers' analyst Gianfranco Bertozzi wrote in a note to clients.

"We see default risk low in 2008 and next year it will more likely hinge on available resources, i.e. oil prices, than on issues of legitimacy."

The reassurance from Ecuador's finance minister was a positive sign for investors who have been concerned by President Rafael Correa's threats to annul "illegitimate" foreign debt.

Correa on Thursday took control of six companies owned by a family group as payment of debt the government says it is owed. The move may increase Correa's popularity before a vote on a new constitution designed to give him more power. [ID:nN27509125]

Argentina's spreads tightened 11 basis points to 667 basis points on the EMBI+ as the government conducted on Thursday a buyback of up to 150 million pesos ($48.9 million) of Boden 2012, Boden 2013, peso-denominated GDP warrants and dollar-denominated GDP warrants issued under Argentine legislation.

That is the first of a series of periodic auctions the government said it will carry this year to reduce short-term financial obligations.

MEXICO'S INFLATION PEAKING

In local debt markets, yields on Mexico's benchmark 10-year bonds <MX10YT=RR> fell 5 basis points to 8.51 percent after central bank governor Guillermo Ortiz said the institution is seeing the end of a recent inflation spike caused by surging international food and energy prices.

His comments solidifed broad expectations the central bank will not raise interest rates for the foreseeable future, after three rate hikes in the past three months. [ID:nN28301012]

Colombia's local-bond yields declined further on Thursday as analysts expect the central bank to start cutting interest rates next year to support a weakening economy, even if it risks having inflation above the current target's ceiling of 4.5 percent. [ID:nN27421103]

Yields paid on Colombia's bond maturing in July 2020 <CO240720F=SENC> fell to 11.36 percent from Wednesday's close of 11.5 percent. Yields on the benchmark bond had reached 13 percent in mid-July, when the central bank was still tightening monetary policy. (Additional reporting by Aluisio Alves in Sao Paulo; Editing by Leslie Adler)