March 19, 2015 / 6:00 PM / 4 years ago

EMERGING MARKETS-Brazil's real slumps on political turbulence

SAO PAULO, March 19 (Reuters) - The Brazilian real 
fell to its weakest level in nearly 12 years on Thursday as
political wrangling heightened investor concern over the outlook
for fiscal reform in Latin America's largest economy.
    Most other currencies in the region weakened as well, with
investors snapping up dollars after a broad decline in the U.S.
currency following Wednesday's Federal Reserve policy statement.
    Brazil's President Dilma Rousseff rebuffed questions about a
cabinet reshuffle on Thursday, a day after her education
minister resigned following a heated argument with lawmakers,
highlighting the president's fragile congressional coalition.
    "The political cost of making the (fiscal) adjustment keeps
getting higher and the market doesn't like it," said Jaime
Ferreira, head of currency trading at Intercam in Sao Paulo.
    Failure to pass key spending cuts and tax increases could
lead to a sovereign credit rating downgrade and a major outflow
of portfolio investments.
    Brazil's government has signaled that it is comfortable with
the sharp depreciation of the real, which weakened over 19
percent against the dollar this year. 
    "We have had a big correction in the exchange rate, which
helps our competitiveness," Rousseff's chief of staff, Aloizio
Mercadante, said on Thursday.
    Yields on Brazilian interest rate futures <0#DIJ:> rose as
the weaker currency raised the outlook for inflation.
    Equity markets were broadly lower as investors took profits
following a strong rally in the previous session. Wednesday's
gains were sparked by signals from the Fed that it would wait
longer to raise interest rates than many investors had expected.
    Brazil's Bovespa stock index fell about 1 percent,
with losses concentrated in the shares that rose most sharply on
Wednesday, including lender Itau Unibanco Holding SA 
and state-run oil producer Petroleo Brasileiro SA,
known as Petrobras.
    The broader MSCI Latin American stock index 
fell about 0.5 percent. 
    Key Latin American stock indexes and currencies at 1735 GMT:
 Stock indexes                           daily %     YTD %
                             Latest       change    change
 MSCI Emerging Markets           963.9      0.75      0.04
 MSCI LatAm                    2404.09     -0.54    -11.38
 Brazil Bovespa               50984.22     -1.05      1.95
 Mexico IPC                   44011.66     -0.79      2.01
 Chile IPSA                    3863.14     -0.06      0.32
 Chile IGPA                    18845.9     -0.09     -0.13
 Argentina MerVal            11085.359     -1.68     29.21
 Colombia IGBC                 9962.09     -0.15    -14.38
 Peru IGRA                    12615.25     -0.04    -14.73
 Venezuela IBC                 4704.73      0.78     21.92
 Currencies                              daily %     YTD %
                                          change    change
 Brazil real                    3.2800     -2.05    -18.98
 Mexico peso                    15.274     -1.24     -3.47
 Chile peso                     639.75     -0.43     -5.21
 Colombia peso                 2625.54      0.11     -9.05
 Peru sol                        3.097     -0.26     -3.81
 Argentina peso                 8.7925      0.00     -2.76
 Argentina peso                  12.83      1.01      9.12

 (Reporting by Asher Levine and Bruno Federowski; Editing by
Diane Craft)
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