Brazil nerves focus on bank; stocks plunge again

Fri Oct 24, 2008 5:04pm EDT
By Stuart Grudgings
SAO PAULO, Oct 24 (Reuters) - Brazilian stocks slumped for a fourth day on Friday as a major bank became the latest focus of fears of financial instability caused by a liquidity crunch and the currency's dive against the dollar.
The central bank propped up the currency by pumping another $2.5 billion into the market as intense global worries over recession continued to drive investors out of emerging markets.
Brazil's real BRBY fell 1 percent to 2.308 per dollar after earlier slumping about 4 percent.
The Bovespa .BVSP, slid 6.91 percent to 31,481.55, following another sharp fall in U.S. stocks and shares globally. It is down 13.5 percent for the week.
Shares of Unibanco (UBBR11.SA: Quote, Profile, Research, Stock Buzz) (UBB.N: Quote, Profile, Research, Stock Buzz) plunged more than 22 percent at one point, despite releasing earnings that were in line with expectations and reassuring investors it had no exposure to foreign currency risk.
Unibanco shares closed at 10.5 reais, down 8.7 percent, after bank executives said the bank was on solid financial ground, with deposits rising and 33 client companies with what it said were only small currency derivative exposures.
The bank later said it had made an offer to purchase American International Group Inc's (AIG.N: Quote, Profile, Research, Stock Buzz) Brazil operations.
The bank had rushed out its third-quarter earnings two weeks early as its shares dived in early trade.
The results were in line with expectations, but what is driving things at the moment is investors' loss of confidence," said Joao Augusto Frota, senior analyst at the RiskBank consultancy.
A handful of leading Brazilian companies have announced billions of reais in currency losses over the past two weeks, including food processor Sadia (SDIA4.SA: Quote, Profile, Research, Stock Buzz), pulp and paper maker Aracruz (ARCZ6.SA: Quote, Profile, Research, Stock Buzz) and industrial conglomerate Votorantim.
Aracruz sank 13.7 percent to 2.2 on Friday.
Brazil's national development bank BNDES will help export companies that have losses from foreign currency derivatives, its president Luciano Coutinho said on Friday.
He said talks were taking place between the bank and some companies that had been hurt by the sharp strengthening of the dollar against Brazil's currency but gave no details.
Brazilian policy makers are trying to alleviate a liquidity drought which is pushing up interbank rates, dragging down the currency and may be threatening some businesses and banks, especially small to medium-sized institutions and exporters.
The currency reversed its early losses after the central bank intervened to boost liquidity through an auction of $1.7 billion in dollar swap agreements and also offered dollars in the spot market. It also offered dollars directly in two auctions amd later sold another $752 million in swaps.
The central bank has pumped more than $28 billion into the foreign exchange market this month in the form of dollar swaps, dollar repurchase agreements and outright intervention to add liquidity and support the currency.
On Thursday, it said it stood ready to offer $50 billion worth of swaps, equivalent to a quarter of Brazil's foreign reserves, helping the real briefly soar against the dollar.
The real has been one of the world's worst-performing currencies this year, losing a third of its value since its peak near 1.55 in late July and about 20 percent this month.
Other financial firms also suffered another grim day. Banco do Brasil fell 2.6 percent to 12.75 reais; Bradesco (BBDC4.SA: Quote, Profile, Research, Stock Buzz) dived 7.36 percent to 20.01 reais and Itau (ITAU4.SA: Quote, Profile, Research, Stock Buzz) lost 10.6 percent to 17.5 reais.
Market heavyweight Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz) dived 10.1 percent to 20.4 reais as oil prices continued their slide.
Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz) , one of the world's top three miners,ended 5.36 percent lower at 22.05 reais.
The company said on Friday that Chinese demand for metals was down sharply but that it would not ship iron ore without a 12 percent price increase that Chinese mills have so far refused to accept.
Vale reported late on Thursday a 64 percent rise in net profit in the third quarter from a year earlier.
(Reporting by Aluisio Alves and Jenifer Correa; Writing by Stuart Grudgings; Editing by Diane Craft)