Colombian Currency Advances for Second Day on Increased Demand.

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May 19 (Bloomberg) -- Colombia's peso rose for a second day as a bigger-than-forecast decrease in U.S. initial jobless claims bolstered optimism about the economic recovery, leading to increased demand for higher-yielding, emerging-market assets.

The peso rose 0.1 percent to 1,816.09 per U.S. dollar at 2:30 p.m. New York time, from 1,817.20 yesterday. The peso has gained 3.4 percent in the last three months, the second-best performance after the Mexican peso among six Latin American currencies tracked by Bloomberg.

"Markets are returning to a relative calm today, which translates into reduced risk aversion," said Gustavo Sorzano, an analyst at Bogota-based Helm Bank SA.

The U.S. Labor Department said in a report today that jobless claims declined by 29,000 to 409,000 in the week ended May 14. The median estimate of economists in a Bloomberg News survey called for a drop to 420,000.

Speculation the government is buying dollars on the spot market as it seeks to stem the local currency's rally helped ease gains in the peso, according to Sorzano.

Finance Minister Juan Carlos Echeverry said in April the government would create an overseas fund with as much as $1.2 billion from dollars bought in the local spot market through the end of 2011, and forgo repatriating funds from abroad for the rest of the year. That comes on top of the central bank's plans to buy a minimum of $20 million daily until at least June 17.

'Political Considerations'

Colombia's central bank will likely extend daily dollar purchases after June 17 as a change in regulations allows the government to issue peso bonds to remove excess liquidity from the economy, Bank of America Corp. said.

"Watch out for increased Banco de la Republica intervention," Bank of America strategist Alberto Boquin wrote in a report today. "An extension of the U.S. dollar purchase program is likely on the back of political considerations."

Congress last month approved a four-year economic development strategy that includes an article allowing the central bank to use peso bonds, known as TES, sold directly by the government to take cash out of the economy.

The yield on the nation's 10 percent bonds due July 2024 fell two basis points, or 0.02 percentage point, to 8.17 percent, according to Colombia's stock exchange. The bond's price rose 0.155 centavo to 114.384 centavos per peso.