Brazil currency falls to 7-month low, stocks sink

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SAO PAULO, Sept 9 (Reuters) - Brazil's currency slumped to a seven-month low and stocks fell more than 4 percent on Tuesday to their lowest level in more than a year, tumbling along with Wall Street on renewed fears about the extent of the mortgage crisis in the United States.

The Brazilian real BRBY weakened a hefty 2.14 percent to 1.773 per U.S. dollar, its lowest close since Jan. 30. The real has shed 8 percent of its value in the last seven sessions and almost 14 percent since the beginning of August, nearly wiping out all of its gains this year.

The Bovespa index .BVSP of the Sao Paulo Stock Exchange sank 4.5 percent to 48,435.3, closing below the 50,000-point mark for the first time since Aug. 21, 2007. Petrobras and mining and steel sector shares led the index lower, sinking with oil and metals prices on world markets.

Interest-rate futures <0#DIJ:> on the BM&F commodities and futures exchange also rose sharply, reflecting the downturn in market sentiment and expectations that Brazil's central bank will raise interest rates on Wednesday for the fourth time since April to curb inflation.

Concerns about slumping commodity prices in recent days have weighed on markets in Brazil, an agricultural and mining powerhouse. The mood took a turn for the worse on Tuesday as fears about U.S. investment bank Lehman Brothers' ability to raise capital caused its share price to slide more than 40 percent, triggering a ripple effect in world financial markets.

"The market is extremely nervous, very tense," said Jorge Knauer, head of currency trading at Banco Prosper in Rio de Janeiro. "People are rushing to buy dollars as a safe haven."

At the stock exchange, state-run energy company Petrobras (PETR4.SA) dragged the Bovespa index lower, tumbling 6.31 percent to 28.35 reais. The stock -- the heaviest weighted in the index -- sank as Brent crude oil prices fell below $100 a barrel for the first time in five months.

Vale (VALE5.SA), one of the world's largest mining companies, dropped 4.33 percent to 33.34 reais as copper prices slid to a 7-1/2-month low on concerns about dwindling demand for industrial metals in key markets like China.

Vale's shares dropped even after it confirmed it is in talks with Asian steelmakers about raising iron ore prices halfway through the annual contract cycle.

CSN (CSNA3.SA) slumped 8.29 percent to 42.70 reais as investors sold off shares of Brazilian steelmakers on concerns over the drop in metals prices and soft demand for steel products. Usiminas (USIM5.SA) sank 8.67 percent to 43.20 reais and Gerdau (GGBR4.SA) fell 7.85 percent to 23.11 reais. (Reporting by Silvio Cascione and Todd Benson; Editing by Jonathan Oatis)