September 29, 2008 / 9:14 PM / 11 years ago

Brazil stocks in worst rout in decade, real sinks

(Updates to close)

By Elzio Barreto

SAO PAULO, Sept 29 (Reuters) - Brazil’s stock market had its worst one-day plunge in almost a decade on Monday and the currency sank nearly 6 percent after the U.S. House of Representatives rejected a $700 billion plan to bail out the financial services sector.

The Bovespa index .BVSP of the Sao Paulo Stock Exchange sank 9.36 percent to 46,028.06 points, its steepest drop since a 9.97 percent slump on Jan. 14, 1999. The index sank as much as 13.8 percent earlier and trade was halted for 30 minutes after it slumped 10 percent.

“The signs are all very bad,” said Roberto Padovani, chief economist at WestLB in Sao Paulo. “The Bovespa is getting hit by three main issues: global aversion to risk, a slump in commodity prices and a domestic outlook that would be affected by the credit crunch.”

Brazilian stocks are among the most widely traded and liquid in emerging markets, often making them more vulnerable to steep declines than elsewhere in Latin America. Bourses elsewhere in the region also fell on Monday, though the declines were not as strong, with markets falling 5.4 percent in Chile, 6.4 percent in Mexico and 8.7 percent in Argentina.

Government officials in Brazil sought to talk down worries about the market turmoil, with President Luiz Inacio Lula da Silva and Finance Minister Guido Mantega saying the economy remains strong.

“We’re calm, but we know that the crisis is grave,” Lula told reporters in Rio de Janeiro.

Brazil’s currency, the real BRBY, tumbled 5.7 percent to 1.964 per dollar from 1.853 on Friday, closing at its weakest level since Sept. 10, 2007. It was the biggest one-day loss for the currency in almost seven years.

“The situation is critical, the market really didn’t expect” the rejection of the bailout plan, said Marcos Forgione, an analyst at the Hencorp Commcor brokerage.

Interest-rate futures <0#DIJ:> on the BM&F commodities and futures exchange were mixed, with short-term contracts edging lower and long-term contracts rising.

At the stock market, BM&F Bovespa, which operates Brazil’s stock and derivatives exchange, sank 20.2 percent, leading a broad-based slump in Brazilian financial services shares. The stock BVMF3.SA plunged to 7.26 reais as investors dumped financial services stocks and fled emerging market assets.

Bradesco (BBDC4.SA), Brazil’s largest private sector bank, slumped 5.6 percent to 28.5 reais, while Itau ITAU4.SA dropped 5.9 percent to 29.06 reais.

State-run oil company Petrobras (PETR4.SA) led the market lower, falling 7.6 percent to 32.75 reais, tracking a slump of more than 10 percent in crude oil prices CLc1 on concerns the turmoil in financial markets may dampen global energy demand.

Miner Vale VALE5.SA sank 12.1 percent to 30.3 reais as copper prices fell its lowest level since December 2007, dragging zinc, nickel and other industrial metals down with it. (Additional reporting by Jenifer Correa in Sao Paulo, Rodrigo Viga Gaier in Rio de Janeiro and Ana Nicolaci da Costa in Brasilia; Editing by Diane Craft)

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