Brazil stocks fall on China policy worries

SAO PAULO, March 15 (Reuters) - Brazilian stocks fell early on Monday as concerns about monetary policy tightening in China weighed on markets globally.

At a news conference on Sunday, Chinese Premier Wen Jiabao reiterated that China must balance growth and inflation targets, stoking concern that the country could be preparing for tighter credit policy [ID:nTOE62D001].

Last year, China became Brazil's main trading partner.

China's growth and voracious appetite for commodities have made it a major engine in restarting the slumping world economy.

"There are some concerns on China, but that affects everybody," said Pedro Tuesta, senior Latin America economist at research firm 4Cast Inc in Washington.

Brazil's benchmark Bovespa stock index .BVSP shed 0.25 percent to 69,166.11 in the morning, dipping into and out of positive territory. Brazil's currency, the real BRBY, changed little, weakening 0.17 percent to 1.766 per dollar.

An increase in shares of Vale, one of the biggest stocks in the index, helped limit declines in steelmaking, mining and real estate stocks.

Companies with a focus on the domestic economy fell as investors took profits ahead of this week's central bank monetary policy decision on Wednesday, traders said.

Gerdau (GGBR4.SA), the largest steelmaker in the Americas, lost 0.8 percent to 27.18 reais and CSN (CSNA3.SA) fell 0.97 percent to 67.49 reais.

Homebuilders slid, with Gafisa (GFSA3.SA) shedding 2.38 percent to 13.13 reais and Cyrela (CYRE3.SA) 2.25 percent to 22.11 reais.

Airline Gol (GOLL4.SA) dropped 1.7 percent to 23.64 reais. Raymond James cut the stock to underperform from market perform on Monday. [ID:nWNAB9442]

MMX (MMXM3.SA), the mining company owned by Brazilian billionaire Eike Batista, lost 1.2 percent to 13.86 reais.

Vale (VALE5.SA), the world's largest iron ore producer, added 0.5 percent to 46.66 reais ahead of the expiration of monthly options contracts in the stock exchange.

Yields on shorter-term Brazilian interest rate futures contracts <0#DIJ:> inched up on expectations of an upcoming rate hike.

The yield on the contract due April 2010 DIJJ0 edged to 8.83 percent from 8.812 percent. The yield on the contract due January 2011 DIJF1 ticked to 10.54 percent from 10.52 percent.

Central bank policymakers will unveil on Wednesday a decision on interest rates, with some economists expecting an increase in borrowing costs from a record low 8.75 percent.

Expectations for 2010 inflation have been rising. Local economists pegged the 2010 number at 5.03 percent in a weekly central bank survey, up from the previous forecast of 4.99 percent [ID:nN15187832]

That's above the center of the central bank target this year, set at 4.5 percent, plus or minus 2 percentage points.

A decision on the Selic is expected after 6 p.m. local time on Wednesday. (Reporting by Luciana Lopez; Additional reporting by Aluisio Alves in Sao Paulo; Editing by Guillermo Parra-Bernal and Kenneth Barry)