By Asher Levine and Sujata Rao
SAO PAULO/LONDON Feb 26 Ukraine's hryvnia currency tumbled on Wednesday to a record low, as investors were unsettled by the country's murky political and economic outlook, while Brazil's real retreated after a five-day rally.
Ukraine remains without a settled government several days after President Viktor Yanukovich was overthrown, raising fears the country will fail to secure outside financial support in time to repay debts as its own hard currency reserves dwindle.
"The whole political picture in Ukraine has become even more blurred than before," said Simon Quijano-Evans, head of emerging markets research at Commerzbank in London.
"As long as there is no clear resolution on who is in charge and as long as there is no unity among global policymakers on resolving the issues, it is impossible to say what happens to asset prices."
Ukraine's foreign currency reserves have dropped to $15 billion from $17.8 billion on Feb. 1, central bank chief Stepan Kubiv said on Wednesday.
The country has asked the International Monetary Fund to help prepare a new financial aid program, Kubiv said, adding that the new government would soon have its own anti-crisis program ready..
Investors remained shaken, driving the hryvnia down around 4 percent to 10 per dollar, while five-year credit default swaps jumped 76 basis points, Markit data showed.
Meanwhile, Russian president Vladimir Putin, a key Yanukovich ally, put combat troops on high alert for war games near Ukraine on Wednesday, adding to tensions over escalating conflict in the region.
Concern spread to Russian assets where the rouble fell to five-year lows against the euro and bank shares fell.
Russia holds $3 billion worth of Ukrainian debt issued last December which could end up in default if certain bond covenants are breached. [ID: nIFRh2jP1]
"These Ukraine concerns (are weighing) on the rouble," said Maxim Korovin, fixed income analyst at VTB Capital in Moscow, adding that investors may be betting against the rouble as a way to reduce exposure to the region and so indirectly hedge their Ukraine risk.
"If you short the rouble and the rouble is weakening that will offset your loss," he said.
REAL WEAKENS, PETROBRAS DOWN
Brazil's real ended a five-day gaining streak against the dollar, weakening 0.2 percent. Local traders said the move reflected a normal readjustment following the rally, which was sparked by optimism over the government's new, more realistic, primary fiscal surplus target.
Yields on interest rate futures were mostly stable with Brazil's central bank seen set to likely hike its benchmark interest rate by 25 basis points later on Wednesday, according to a Reuters poll.
Brazilian stocks' benchmark Bovespa index rose 0.4 percent, erasing some of its 1.4 percent loss in the previous session.
Better-than-expected earnings from planemaker Embraer SA and telecommunications firm Telefonica Brasil SA supported gains in the morning, but shares of state-run oil producer Petroleo Brasileiro SA weighed. The company known as Petrobras posted a 19 percent drop in quarterly profit and cut its near-term investment outlook late Tuesday.
"We believe it has excellent assets in its portfolio and impressive growth potential, but government intervention with a negative effect could make the 'stairway to heaven' a rocky and long road that some investors might want to avoid," wrote HSBC Securities analyst Luiz Carvalho on Wednesday.
Elsewhere in Latin America, Chile's peso fell to its weakest level in three weeks, driven mostly by higher demand for dollars due to expiring forward contracts, a trader said.