Brazil's real sinks to 1-year low, stocks tumble

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SAO PAULO, Sept 17 (Reuters) - Brazil's currency sank to its weakest in a year on Wednesday and stocks slumped as investors fled emerging market securities on concerns that a global credit crunch will worsen.

The benchmark Bovespa index .BVSP of the Sao Paulo Stock Exchange tumbled 6.74 percent to 45,908.51 amid a sell-off that battered financial stocks.

Brazil's currency, the real (BRBY), lost 2.58 percent to 1.867 per U.S. dollar, its weakest close since Sept. 24, 2007 as aversion to riskier securities jumped.

Central bank data on Wednesday signaled that foreign investors who sold off local stocks have decided to keep their cash inside the country, in local bonds.

Net inflows of dollars to Brazil totaled $4.33 billion in the first 10 business days of September compared with inflows of $1.94 billion for all of August, the central bank said.

Net inflows from trade transactions reached $3.61 billion in the first days of September compared with $4.09 billion in all of August. Net financial inflows reached $725 million compared with outflows of $2.15 billion last month.

"The perception is that a large part of those investments that exit the stock market are going to local bonds and are not leaving the country," said Mario Battistel, a manager at the the Fair brokerage.

The U.S. rescue of insurance giant American International Group (AIG.N) failed to reassure investors, days after major investment bank Lehman Brothers Holdings Inc LEH.N filed for bankruptcy protection.

U.S. markets slumped, dragging down Brazilian markets with them, as investors wondered which might be the next financial services company to come under strain because of tight global credit conditions.

"There are new financial risks abroad keeping the market under extreme volatility," said Francisco Carvalho, head of foreign exchange at the Liquidez brokerage. "While there is this systemic risk, the market will continue to be volatile."

On the stock market, shares of Bradesco (BBDC4.SA) sank 5.1 percent, while Banco do Brasil, Itau and other Brazilian banks also slumped as investors sold off financial stocks around the world.

Yield spreads of Brazil's government overseas bonds over comparable U.S. Treasuries, as measured by JPMorgan's EMBI+ index, widened sharply, reflecting an increase in investors' risk aversion toward Brazilian assets. The index 11EMJ showed the country's bond spread widened by 21 points to 371 at one point, though they later were 9 points wider at 359.

Interest-rate futures <0#DIJ:> on the BM&F commodities and futures exchange jumped, tracking the slump in the currency and equity markets.

On the stock exchange, mining giant Vale (VALE5.SA) tumbled 7.7 percent to 32.20 reais, adding to recent declines as copper fell near an eight-month low and other metals prices also declined.

Brazilian steelmakers were also weighed by the slump in metals prices. CSN (CSNA3.SA) lost 9.1 percent to 43.75 reais, while Usiminas (USIM5.SA) declined 9.8 percent to 37.99 reais.