Brazil's stocks fall in thin trade, currency firms

SAO PAULO, Jan 19 (Reuters) - Brazilian stocks fell on Monday in thin trade as commodity shares tumbled from the expiration of stock options contracts in the local burse, while the national currency gained against the U.S. dollar.

The benchmark Bovespa index .BVSP of the Sao Paulo stock exchange fell 0.96 percent to 38,962.65 points, after a small gain of 0.49 percent on Friday.

Without guidance from Wall Street, closed for the Martin Luther King’s holiday, the Brazilian stock market was using European bourses as reference.

The FTSEurofirst 300 .FTEU3, the index of top European shares, fell sharply as banks slumped, led by Royal Bank of Scotland RBS.L after it reported the biggest-ever loss in UK corporate history.

Investors in Brazil also said they were waiting for more signals from the U.S. government on how it will deal with the financial crisis that is dragging down most economies in the world.

“The market is waiting for some consistent indication from Obama to deal with the crisis. While this doesn’t happen, concerns will persist,” said a trader at a large brokerage in Sao Paulo who asked not to be named.

State-run energy company Petrobras PETR4.SA dropped 1.3 percent to 23.97 reais, weighed by a plunge of nearly 6 percent in crude oil prices in New York.

Interest rate futures <0#DIJ:> were lower across the board after a central bank weekly survey showed economists expect a sharp reduction in interest rates by the end of the year.

According to the survey, analysts cut their forecast for the Selic benchmark lending rate in December to 11.25 percent from 11.75 percent in the previous survey.

For this week, economists in the survey reaffirmed their bets that the central bank’s monetary policy committee, known as Copom, will cut interest rates by 0.50 percentage point to 13.25 percent.

Still, the yield on the February 2009 interest rate futures is pricing in a 0.75 percentage point cut on Wednesday, when the Copom ends its two-day meeting.

A Reuters survey published last week showed all 27 economists polled expect Brazil’s central bank to trim the Selic, with 14 betting on a 50 basis-point cut and 12 on a larger 75 basis-point reduction. Only one of the analysts forecast a 25 basis-point cut.

Brazil's real BRBY strengthened 0.43 percent to 2.334 reais per dollar, adding to gains in the previous session, when the currency jumped 1.8 percent to 2.344 reais per dollar.

The volume of trade was also thin due to the holiday in U.S. markets, traders said.

Reporting by Aluisio Alves and Jenifer Correa; Writing by Renato Andrade, editing by Martin Golan