Brazil stocks, real fall on fading recovery hopes

By Guillermo Parra-Bernal

SAO PAULO, July 6 (Reuters) - Brazilian stocks edged lower early on Monday and the currency dropped as hopes the global economic recovery is gaining enough traction faded.

The Bovespa stock index .BVSP slid 1.3 percent to 50,925.82, leading to a third day of declines that pushed the index to its lowest level since June 25. Financial and commodities stocks drove the Bovespa lower, reflecting concern over the extent and duration of the global economic downturn.

The real (BRBY), Brazil's currency, weakened 1.3 percent to 1.979 reais to the dollar, declining for a third session.

Investors around the world were hit by last week's much weaker-than-expected jobs data in the United States and are moving cautiously ahead of the start of the U.S. earnings season, which kicks off with Alcoa (AA.N) this week.

Brazilian markets tend to follow U.S. equity markets closely as a gauge for global investor sentiment and risk-taking appetite. Brazilian investors likely will take in the latest U.S. data with a look at the services sector as the Institute for Supply Management releases its June non-manufacturing index, at 1400 GMT.

"Because market perceptions got darker especially last week, markets turned wary and risk aversion spread globally," Marcelo Portilho of Sao Paulo-based CM Capital Markets said in a note to clients. "Markets are tumbling."

Drops in the Bovespa may continue in the coming days as indicated by futures contracts. The Bovespa futures contract due in August INDQ9 shed as much as 1.7 percent to 50,500 points early on Monday.

Sliding commodity prices also triggered declines in the Bovespa. The Reuters-Jefferies CRB index .CRB, a commodities benchmark, fell 0.8 percent and oil CLc1 tanked 4 percent to $64.04 a barrel.

"With commodities prices down, the dollar should gain ground" against the real, Banco Fator chief economist Jose Francisco Lima Goncalves wrote in a note to clients on Monday.

Shares of Petrobras (PETR4.SA), Brazil's state oil company, slid 1.4 percent to 30.29 reais. Chief Executive Jose Sergio Gabrielli told Valor Economico in an interview published Monday that the company won't be affected by changes in the law governing Brazil's oil industry.

Vale (VALE5.SA), the world's biggest iron-ore producer, dropped 1.5 percent to 29.48 reais. Both Petrobras and Vale have the biggest weighting in the 65-share index.

BM&F Bovespa (BVMF3.SA), which operates the BM&F and Bovespa trading exchanges, tumbled 2.3 percent to 11.3 reais.

Airlines Gol (GOLL4.SA) and TAM (TAMM4.SA) dropped 2.5 percent and 2 percent, respectively. Newspaper Valor said the government is considering a revamp of legislation for the air industry to foster more competition and enable more stable rules including longer operating permits.

The release of a weekly survey by the central bank showed stable forecasts for inflation and economic growth rates from last week. Nevertheless, the perception among some local economists that an economic recovery might come at a slower pace than initially thought may weigh on stocks and push yields lower, according to Fator's Goncalves.

The yield on the Jan. 2010 interest-rate futures contract DIJF0, the most widely traded in Sao Paulo, dropped 0.02 percentage point to 8.75 percent. (Editing by Andrea Ricci)