(Recasts to lead on central bank intervention, updates prices, adds quote from J.P. Morgan)
By Walter Bianchi and Jorge Otaola
BUENOS AIRES, May 10 (Reuters) - Argentina’s peso was stable after the central bank sold foreign currency reserves in the spot market on Thursday for the first time since the country announced it was seeking financing from the International Monetary Fund (IMF), traders said.
Stocks and bond prices also rose on Thursday, the first session after the government said it would request a “high access standby” financing deal from the IMF as Argentina tries to tackle one of the world’s highest inflation rates amid general outflows from emerging markets.
The peso had weakened earlier in the session, falling to 22.72 per U.S. dollar before the central bank intervention. It was trading flat at 22.68 per dollar as of 2:06 p.m. local time (1706 GMT).
Through Wednesday the local currency had weakened 9.12 percent in May and 17.5 percent since the start of 2018, prompting the central bank to sell billions of dollars in foreign currency reserves and hike interest rates to 40 percent.
A central bank spokesman did not respond to a request for comment.
“The recent government measures to contain capital outflows should allow markets to find some stability,” J.P. Morgan said in a note on Thursday, though it said it had reduced the size of its overweight position in the peso due to the recent volatility.
Treasury Minister Nicolas Dujovne was set to meet with IMF Managing Director Christine Lagarde in Washington after meeting with IMF Western Hemisphere Director Alejandro Werner on Wednesday.
Finance Minister Luis Caputo said the deal would guarantee financing through the end of President Mauricio Macri’s first term in December 2019 at a “very good” interest rate of around 4 percent.
Bonds have rallied on the IMF talks, with the country’s over-the-counter bonds rising percent on average on Thursday. Dollar-denominated debt led the surge.
Stocks continued the rebound that began on Wednesday after Congress passed a reform to the country’s capital markets law. The benchmark Merval index was up 4 percent on Thursday morning, led by energy companies.
Despite the calm markets, traders and analysts said the tightening of monetary and fiscal policy and conditions the IMF was likely to propose for the loans posed risks to Argentina’s economy. Capital Economics warned that the measures would lead to a recession this year, forecasting a 0.5 percent contraction. (Reporting by Jorge Otaola and Walter Bianchi; writing by Hugh Bronstein and Luc Cohen Editing by Phil Berlowitz and Alistair Bell)
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