Brazil stocks seesaw on investor nerves; real flat

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SAO PAULO, Sept 29 (Reuters) - Brazilian stocks fell on Tuesday on choppy trading as investors worried that recent gains in equities may have come too quickly.

The benchmark Bovespa index .BVSP slipped 0.13 percent percent to end at 61,235.26 points following two straight sessions of gains.

Brazil's currency, the real BRBY, closed unchanged at 1.794 per U.S. dollar. The real has recently been trading at levels not seen since September 2008.

"People are showing some caution," said Hersz Ferman, an economist with Um Investimentos. "Recent gains in the index came very quickly and so the appetite to buy into the index more could be somewhat diminished."

The Bovespa had risen about 8.5 percent from the end of August through Monday's close and is up about 63 percent since the start of the year.

Investors could book profits in the short term, Ferman said, though perhaps not in large increments.

Stocks fell on volatile trading in U.S. markets, as a surprise drop in a gauge of consumer confidence offset signs of stabilization in housing and a stronger-than-expected quarterly profit from drugstore chain Walgreen Co (WAG.N).

Brazilian investors often look to markets in the United States, the world's largest economy, to gauge international and appetite for risk taking.

State-controlled energy giant Petrobras (PETR4.SA) dipped 0.34 percent to 34.77 reais as crude oil CLc1 settled 0.19 percent lower on concerns about global demand.

Mining company Vale (VALE5.SA), the world's largest producer of iron ore, slipped 0.73 percent to 36.53 reais.

"Iron ore demand should remain strong over the next few years on strong Chinese steel production," Merrill Lynch said in a report on Monday. "Vale is our top pick in LatAm mining, given the exposure to iron ore."

Petrobras and Vale have the heaviest weightings in the Bovespa index.

Bank shares gained, with Itau Unibanco (ITUB4.SA) adding 3.32 percent to 35.20 reais, Bradesco (BBDC4.SA) advancing 2.59 percent to 34.50 reais and Banco do Brasil (BBAS3.SA) rising 1.9 percent to 30.57 reais.

The Brazilian central bank announced changes to bank reserves requirements late Monday, though chief Henrique Meirelles said Tuesday that he foresees no more changes to those rules in the near future. For details, see [ID:nSPG002534]

New data Tuesday also showed that default rates among Brazilian borrowers remained stable in August from July as bank lending rose.

Yields on Brazilian interest rate futures contracts <0#DIJ:> largely ticked lower.

The yield on the contract due January 2011 DIJF1 inched down to 10.17 percent from 10.18 percent. The yield on the contract due January 2012 DIJF2 stayed flat at 11.41 percent.

The two were among the most highly traded instruments of the day.

Speculation that Meirelles will join a political party in coming days ahead of a run for the governorship of the state of Goias has added volatility to long-term contracts. (Reporting by Luciana Lopez, Editing by Gary Crosse))