Brazil's stocks, currency dive on US bailout shift

Wed Nov 12, 2008 3:54pm EST
(Adds closing prices)
SAO PAULO, Nov 12 (Reuters) - Brazil's stock market and currency ended sharply weaker on Wednesday, after U.S. equities plunged on news the U.S. Treasury would back off from buying troubled mortgage assets with the $700 billion bailout fund.
The Bovespa index .BVSP of the Sao Paulo stock exchange closed at 34,373.99, down nearly 7.8 percent from Tuesday's close and ending a three-session run of gains.
Shares of major miner Vale closed nearly 6.7 percent off as prices of copper touched three-year lows on expectations of lower demand for industrial metals.
State-run oil company Petrobras ended 13.7 percent down, leading the market lower even after reporting record profits in the third quarter late on Tuesday. Investors dumped the shares on concern over lower crude prices CLc1 and after the company cut its 2008 average daily output forecast.
Brazil's currency, the real BRBY, plunged nearly 2.9 percent to 2.289 per dollar, battered by speculation that a global slowdown will cut investment flows to emerging markets. The real weakened even after the central bank offered dollars on the spot currency market, its first spot market sale in almost a week, and sold about $495 million in currency swaps.
"Abroad, the fear (of recession) continues ...," said Tarcisio Rodrigues, exchange director at Paulista bank. "This weighed heavily on the financial market in late afternoon."
Interest-rate futures <0#dij:> on the BM&F commodities and futures exchange were mostly higher.
U.S. Treasury Secretary Henry Paulson backed away on Wednesday from plans to use a $700 billion financial rescue fund to mop up bad mortgage assets from banks' balance sheets.
Paulson said the government would focus on using a bailout plan to directly invest in financial companies to shore them up. For details see [ID:nN12267400].
On the stock exchange, shares of Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz) sank 13.7 percent to 20.62 reais after the company cut its estimate for average domestic crude output in 2008 by 3 percent due to delays in production platforms coming onstream. A 6 percent plunge in oil prices on Wednesday also weighed on shares.
Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz), the second heaviest weighted stock in the index, slumped 6.7 percent to 23.86 reais on speculation that lower prices for copper, nickel and other metals will affect the company's profits in coming quarters.
Share in BM&F Bovespa (BVMF3.SA: Quote, Profile, Research, Stock Buzz), which operates Brazil's commodities and financial exchanges, fell 8.45 percent to 5.20 reais. BM&F posted late on Tuesday a third-quarter profit of 235.6 million reais, its second earnings report as a merged company. Chief Executive Edemir Pinto said on Wednesday trading volume of derivatives contracts plunged 40 percent in the seven initial sessions of November, compared to the average of the previous three months. (Reporting by Reese Ewing and Jenifer Correa; Editing by James Dalgleish)