Brazil markets dragged down by risk aversion

Mon Mar 2, 2009 5:22pm EST
(Updates to close)
SAO PAULO, March 2 (Reuters) - Brazilian stocks closed sharply lower on Monday, dragged down by global equities, which continue to suffer from investor concerns over financial sector losses and signs of a deteriorating economic growth.
The Bovespa index .BVSP of the Sao Paulo stock exchange closed 5.1 percent lower at 36,234.69 points, after dropping nearly 9 percent over five straight sessions.
European stocks were down nearly 5.0 percent in the day. Major U.S. indexes tumbled to new multiyear lows after the government had to bail out American International Group (AIG.N) for a third time, after it reported the largest quarterly loss in U.S. corporate history.
This fomented investor fears that the U.S. governments efforts to contain the crisis would not be sufficient and that the recession was deepening.
Such concerns scared investors away from riskier assets, with the Brazilian currency, the real BRBY, which plunged nearly 3 percent to 2.443 per U.S. dollar. It was the first time in two months it traded weaker than 2.4 per dollar.
"Although the U.S. government is trying to save the financial institutions, we are witnessing the real economy being affected. The big problem lies in this," said Reginaldo Galhardo, forex manager at Treviso Corretora and Cambio brokerage.
Yield spreads on the Brazilian government's overseas bonds over comparable U.S. Treasuries, as measured by JPMorgan's EMBI+ index, widened sharply, reflecting higher aversion toward Brazilian assets. The index 11EMJ showed the country's bond spread widened by 33 basis points to 454.
Spreads for emerging market bonds as a whole rose 31 basis points to 680.
Itau, Banco do Brasil and other Brazilian financial stocks also dropped in sympathy with their U.S. counterparts.
Itau (ITAU4.SA) fell 5.3 percent to 21 reais, while Banco do Brasil (BBAS3.SA) lost 5.2 percent to 13.10 reais and Bradesco (BBDC4.SA) shed 3.8 percent to 19.92 reais.
Market bellwether, oil giant Petrobras (PETR4.SA) also shed 5.2 percent to 25.02 reais as oil prices fell on fears the United States, a top energy consumer, is falling deeper into recession.
The other market heavyweight, iron ore giant Vale (VALE5.SA), was off 5.9 percent at 25.25 reais.
Steelmakers Gerdau (GGBR4.SA), CSN (CSNA3.SA) and Usiminas (USIM5.SA) all fell -- down 5.5, 6 and 7.2 percent, respectively.
Interest rate futures <0#dij:> on the BM&F commodities and futures exchange were mostly lower as poor economic indicators reinforced expectations the central bank will reduce interest rates next month.
(Reporting by Jose de Castro; writing by Reese Ewing)