UPDATE 1-Brazil cuts bank reserve mandates to ease crunch

Fri Dec 19, 2008 8:51am EST
(Adds detail, context)
BRASILIA, Dec 19 (Reuters) - Brazil's central bank reduced commercial banks' obligatory reserve requirements further on Friday, in its latest attempt to ease a liquidity crunch in domestic credit markets.
The bank said it would reduce reserve requirements on time deposits to 60 percent from 70 percent.
Banks will also be able to use a broader range of financial instruments, including letters of credit, to meet the reserve requirements.
For weeks the central bank has also tried to ease a crunch in the foreign exchange market by selling U.S. dollars, offering dollar repurchase agreements and currency swap contracts.
The government authorized the central bank this month to extend lines of credit designed to help Brazilian companies pay foreign loans coming due in 2009.
The credit crunch has dampened consumer demand for goods such as cars, and weaker global appetite for commodities has led companies to cut back investments in Brazil.
The economy is expected to slow by more than one-half from 6.8 percent on an annual basis in the third quarter of this year.
(Reporting by Renato Andrade; Writing by Raymond Colitt, Editing by Walker Simon)