(Updates prices)
By Bruno Federowski
SAO PAULO, Jan 15 (Reuters) - The Mexican peso rose to a more than five-week high on Monday on hopes that U.S. President Donald Trump may soften his stance on the North American Free Trade Agreement (NAFTA) after negotiations hit a bumpy patch last week.
Renewed worries that Trump would scrap NAFTA had weighed on the peso last week. The talks between the United States, Mexico and Canada are edging closer to the start of campaigning for Mexico's July 1 presidential election, making a breakthrough more unlikely.
However, market participants cited a media report by Axios news site on Sunday that said Trump may be shying away from terminating NAFTA, fearing it would disrupt a U.S. stock market rally and harm farmers and agricultural communities, part of his core constituency.
Trump has said he wants the treaty renegotiated to better favor U.S. interests, and that he will scrap NAFTA if this cannot be achieved. Mexico sells around four-fifths of its exports to the United States so it is particularly vulnerable to increased U.S. protectionism.
The peso strengthened just over 1 percent, by far the biggest gainer in Latin America. Low trading volumes on Monday due to the U.S. Martin Luther King Jr. Day holiday helped to accentuate currency moves.
In a client note, Continuum Economics said that strength in the peso should continue in the first quarter ahead of this year's elections.
"At least for a quarter, investors will be gaining a good carry in one of the most liquid currencies in emerging markets. After one quarter, we may see a return to defensive positions as the market dives into Mexican presidential elections," the note said.
Key Latin American stock indexes and currencies at 2104 GMT:
Stock indexes daily % YTD %
Latest changechangeMSCI Emerging Markets 1209.830.144.29 MSCI LatAm3005.280.615.61 Brazil Bovespa 79752.370.514.39 Mexico IPC 49410.810.560.11 Chile IPSA5745.950.223.26 Chile IGPA 28911.170.283.33 Argentina MerVal 33622.842.76 11.83 Colombia IGBC11553.76-0.61.61 Venezuela IBC 1986.42 20.44-93.73 Currenciesdaily % YTD %
changechange
LatestBrazil real 3.2152 -0.173.05
Mexico peso 18.84251.034.55 Chile peso 602.40.082.03
Colombia peso 2859.55 -0.134.28Peru sol 3.210.190.84
Argentina peso18.7300 -0.21 -0.69(interbank) Argentina peso19.56 -0.10 -1.69(parallel) <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Axios report on Trump and NAFTA ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>(Reporting by Bruno Federowski; Editing by Frances Kerry and Diane Craft)
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