RPT-UPDATE 2-Brazil real dives 2 pct as Fed signals end to stimulus

Wed Jun 19, 2013 6:01pm EDT

* Fed likely to reduce stimulus this year, end it by mid-2014

* Brazil real slumps to weakest level since April 2009

* Central bank refrains from intervening to curb FX slide

By Bruno Federowski

RIO DE JANEIRO, June 19 (Reuters) - Brazil's currency slumped nearly 2 percent on Wednesday to close at a more than four-year low after U.S. Federal Reserve Chairman Ben Bernanke suggested the bank's stimulus program, which has supported investors' appetite for emerging market assets, could end within the next 12 months.

The real closed at 2.2198 per dollar, its weakest since the end of April 2009 and down 1.9 percent for the day, as investors feared a reduction in U.S. stimulus measures would ease the flow of dollars seeking higher returns in emerging markets.

The currency had firmed slightly earlier in the session as exporters decided to take advantage of the real's recent slide to sell some dollars. But gains vanished in the afternoon after the Federal Reserve said in a statement that downside risks to the U.S. economic outlook had diminished since the fall.

The selloff gained traction after Bernanke said that, if economic forecasts are correct, policymakers will likely reduce the pace of bond purchases this year, before ending the program by the middle of next year.

"First, the Fed brought more positive (economic) forecasts and then Bernanke said the bank is nearing the moment to cut down on stimulus," said Luciano Rostagno, chief strategist at WestLB bank in Sao Paulo.

"I expected Bernanke to calm down investors who were worried about a reduction in the purchases (of bonds), but he indicated that those investors are on the right track."

After Wednesday's slump, the real has weakened about 9 percent since the beginning of May, when it was trading around 2 per dollar.

Despite the sell-off, Brazil's central bank did not intervene in the market, a sign that policymakers considered the real's depreciation in line with that of other currencies. In Mexico, the peso also slid more than 2 percent after Bernanke's comments.

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