June 21, 2018 / 1:32 PM / 3 months ago

UPDATE 3-Argentina stocks surge after upgrade to emerging market index

(Updates with closing prices)

BUENOS AIRES, June 21 (Reuters) - Argentine stocks surged on Thursday after index provider MSCI upgraded the country to its emerging markets index a day earlier, a respite from months of dismal economic news for market-friendly President Mauricio Macri.

The local Merval stock index closed up 6 percent, led by industrials and banks. Investment bank Grupo Financiero Valores led gains, rising 18.3 percent to 7.4 pesos($0.2694), while aluminum producer Aluar rose 13 percent to 20.76 pesos.

Before Thursday’s gains, stocks had been negative on the year, damaged by downward revisions to the country’s growth forecast as the central bank tightened monetary policy to fight inflation running at higher than 25 percent annually and to stem a run on the peso currency.

The currency volatility prompted Macri to turn to the International Monetary Fund (IMF) for a $50 billion credit line. The first disbursement of $15 billion arrived on Wednesday, and the central bank on Thursday began to auction $7.5 billion of that in the coming months to finance the budget.

It sold $100 million in the first of 75 planned daily auctions at an average price of 27.40 per U.S. dollar. The peso later closed trading at 27.52 per dollar, up 1 percent from the prior session’s close and well up from record-lows touched last week.

The upgrade means funds that track the emerging markets index will now be able to invest in foreign-listed shares of Argentine companies. The Global X MSCI Argentina exchange-traded fund, which is composed of that index, was up 1.7 percent at $28.96 as of 5:20 p.m. local time (2020 GMT).

But local stocks, as well as other Argentine assets, were benefiting from improved sentiment.

Argentina’s country risk - a measure of the spread between its bond yields and those issued by other governments - was down 13 points. Treasury Minister Nicolas Dujovne said on Wednesday that the MSCI upgrade would lower the country’s borrowing costs.

Analysts said the upgrade could also revive the pipeline of initial public offerings (IPOs) of Argentine companies, which had been dormant since volatility derailed planned listings earlier this year. The top shareholder in small cap oil company Madalena Energy said the move “bodes very well” for its planned listing on the Buenos Aires bourse.

Shares in Bolsas y Mercados Argentinos, which operates the stock exchange, ended up 16 percent at 399 pesos. ($1 = 27.4670 Argentine pesos) (Reporting by Luc Cohen; editing by Bernadette Baum and Diane Craft)

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