Jan. 20 (Bloomberg) -- Colombia’s peso weakened on concern the financial crisis is deepening, hurting investor appetite for higher-yielding, emerging-market assets.

U.S. bank shares tumbled on speculation the global recession will further hurt profits. More than $1 trillion of losses at financial institutions have dragged the world’s largest economies into recession, prompting a plunge in commodity prices and spurring a sell-off of emerging-market assets.

“The cumulus of negative news about European and U.S. banks and the earnings season, which promises to be a bad one, is leading to risk aversion,” said Julian Ramirez, head analyst at Bogota-based brokerage Proyectar Valores SA.

Colombia’s peso dropped 0.6 percent to 2,244.2 per dollar at 2:52 p.m. in New York, from 2,230.1 on Jan. 16, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. Because of the U.S. holiday yesterday, Colombia’s currency and bonds traded in the so-called next-day market, in which payment and delivery were made today.

Oil, Colombia’s biggest export, has plunged from a record $147.27 a barrel on July 11. Crude oil for February delivery fell to as low as $32.70 a barrel today on the New York Mercantile Exchange, its weakest since Dec. 19, before rebounding to $38.85.

Budget Deficit

Colombian Finance Minister Oscar Ivan Zuluaga’s announcement yesterday that the government raised its estimate for this year’s budget deficit, while forecasting economic growth at 3 percent in 2009, is also hurting demand for peso assets, said Daniel Velandia, head analyst at Bogota-based brokerage Ultrabursatiles SA.

The government increased its budget deficit forecast to 1.8 percent of gross domestic product from a previous estimate of 1.2 percent.

The yield on Colombia’s 11 percent bonds due in July 2020 rose for a second day, increasing nine basis points, or 0.09 percentage point, to 10.16 percent, according to Colombia’s stock exchange. The price fell 0.657 centavo to 105.419 centavos per peso.

“Economic growth will likely be lower than what the government expects and in that case we may see an even bigger deficit as tax revenue drops,” said Velandia. He forecasts the economy will expand by as little as 1 percent this year, after growing 3.1 percent in the third quarter of 2008.

Chile, Argentina

In Chile, the peso fell 0.5 percent to 626.75 per U.S. dollar from 623.8 yesterday. The yield for a basket of five-year peso bonds in inflation-linked currency units, known as unidades de fomento, fell four basis points to 3.14 percent, according to Bloomberg composite prices.

Argentina’s peso dropped for a fifth day, sliding 0.1 percent to 3.4601 per dollar, from 3.456 yesterday. The yield on the country’s inflation-linked peso bonds due in December 2033 rose 26 basis point to 17.15 percent, according to Citigroup Inc.’s local unit.

Venezuela’s bolivar slid 0.4 percent to 5.47 per dollar in unregulated trading, traders said.

President Hugo Chavez’s administration pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. People turn to the unregulated market when they can’t get dollars at the official rate.

Venezuela, Peru

The pegged rate, which worked while Venezuela was awash in petrodollars, has become a liability since oil prices tumbled. The government announced last month a reduction in the amount of dollars Venezuelans can buy for travel as the oil-exporting country tries to save reserves amid a drop in crude prices.

In Peru, the sol was little changed at 3.153 per dollar, from 3.152 yesterday.

Peruvian President Alan Garcia yesterday swore in Luis Carranza as the new finance minister, replacing Luis Valdivieso, who stepped down after six months in the job. Carranza returned to the job after a two-year stint as minister that ended in July of last year.

“We do not expect to see a major change in the orthodox orientation of overall macro policy; a policy mix that has served the country well, provided comfort to investors and helped to differentiate Peru from other populist experiments in the Andean region,” Goldman Sachs & Co. economist Alberto Ramos wrote in a report from New York.

The yield on Peru’s 8.6 percent sol-denominated bond due in August 2017 was unchanged at 7.14 percent, according to the local unit of Citigroup Inc.

Source: Bloomberg.com

By Andrea Jaramillo and Drew Benson