December 2, 2008 / 8:49 PM / 12 years ago

Argentine peso hits 7-year low; bonds, stocks gain

(Updates with closing prices, add stocks and bonds)

BUENOS AIRES, Dec 2 (Reuters) - Argentina’s interbank peso currency weakened on Tuesday to its lowest against the dollar since a sharp devaluation in early 2002 as savers and companies opted for safe-haven greenbacks.

The benchmark MerVal stock index .MERV rose 2.87 percent to close at 951.79, tracking gains in other markets around the world following Monday’s sell-off.

“After yesterday’s sharp drop, it was reasonable to expect a price correction within the volatile framework that has returned to the market since the U.S. recession was confirmed,” said Claudio Szlaien, an analyst at Marlon Financial Resources.

Telecom Argentina TEC2.BA TEO.N led gains, rising 8.38 percent.

On the broad market, volume was a thin $17 million and of active issues, 26 advanced, 20 declined and 13 were unchanged.

Fear of a global recession has raised demand for dollars in Argentina in recent months, leading the central bank to sell hundreds of million of dollars from its foreign reserves to stop the peso from falling more sharply.

However, traders said on Tuesday that although the bank was intervening, it appeared to be allowing the peso to weaken.

“There’s a lot of uncertainty and fear (and) faced with so much financial insecurity, people are used to fleeing to the safety of the dollar,” said one currency trader.

In interbank trade, the peso closed down 0.44 percent at 3.395/3.3975 per dollar ARS=RASL, breaking October’s 3.39 low to touch its weakest level since the devaluation of the 2001/2002 economic crisis.

In informal trade between foreign exchange houses ARSB=, the peso weakened 0.51 percent to 3.42/3.425 per dollar.

Most dollar demand was from banks, investors and importers, with grains exporters responsible for most dollar sales.

In the last five months, a sharp fall in global prices for grains such as soybeans and corn has reduced the amount of dollars being sold in the local market by exporters.

On the local debt market, Argentine bonds rose 1.2 percent on average, but trade was choppy due to persistent uncertainty over the global financial crisis and some leading bonds clocked significant losses. Peso-denominated Discount paper ARDISCP=RASL fell 2.1 percent according to the ask prices. (Reporting by Jorge Otaola; Writing by Helen Popper; Editing by James Dalgleish)

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