CORRECTED – Brazil stocks, currency slide on caution, China clampdown

(Corrects to note Brazil policymakers on line 67)

SAO PAULO, Jan 26 (BestGrowthStock) – Brazilian stocks dropped in
early trade on Tuesday, as investors saw recent gains as
potentially overdone in the face of a still-coalescing global
economic recovery.

Brazil’s benchmark Bovespa stock index (.BVSP: ) slid 1.63
percent to 65,142.88, on track to notch a fourth straight day
of losses.

Investor wariness has been prompted in part by a public
debt crisis in Greece and signs of tighter monetary policy in
China. For details, see [ID:nLDE60P0BJ]

The Chinese central bank has told lending institutions they
need to raise reserve ratios to put the change in place on
Tuesday. [ID:nSGE60P039]

China’s voracious appetite for commodities and its roaring
growth have made the country especially important for Brazil, a
major exporter of raw materials.

“This reinforces a reading that we’ve already advanced
plenty, maybe even too much,” said Andre Perfeito, an economist
with Gradual Investimentos.

The Bovespa rallied about 83 percent in 2009, but has
slipped about 3.5 percent from last year’s close through the
end of Friday, the index’s most recent day of trading.

“China was very important last year to get the whole world
economy out of its funk and was specifically important for
Brazil,” said Tony Volpon, head of Latin America research and
economics at Nomura Securities in New York. “Anything bad out
of China will immediately affect Brazil.”

Brazil’s currency, the real (BRBY: ), weakened 1.6 percent to
1.849 per dollar, as the greenback gained against a basket of
major currencies (.DXY: ). The real has declined versus the
dollar for the past five sessions.

The weakening of the real is based on external factors,
said Andre Loes, chief economist with HSBC.

The dollar is considered a safe-haven currency in times of
economic uncertainty.

Commodities also slipped, hurt by the stronger dollar. The
Reuters-Jefferies commodities index (.CRB: ) fell 0.7 percent.

That hurt Bovespa heavyweights Petrobras and Vale, which
led losses Tuesday.

Petrobras (PETR4.SA: ), the state-controlled energy giant,
fell 2.27 percent to 33.98 reais. Iron ore miner Vale
(VALE5.SA: ), which counts China as a major market, declined 1.49
percent to 43.10 reais.

Also losing ground were banks. Itau Unibanco (ITUB4.SA: ),
Brazil’s largest private-sector bank by assets, lost 2.34
percent to 35.40 reais, while Banco do Brasil (BBAS3.SA: ), Latin
America’s largest bank by assets, shed 2.98 percent to 27.69
reais. Bradesco (BBDC4.SA: ) moved down 1.7 percent to 31.24

Changes in yields on Brazilian interest rate futures
contracts (0#DIJ:: ) were mixed, with shorter-term contracts
largely ticking higher.

The yield on the contract due January 2011 (DIJF1: ) rose to
10.4 percent from 10.38 percent. The yield on the contract due
January 2012 (DIJF2: ) edged down to 11.78 percent from 11.81

Both were among the most active contracts of the morning.

The weekly survey of local economists by Brazil’s central
bank showed on Monday that 2010 inflation expectations have
edged higher to 4.6 percent from 4.5 percent.

The central bank’s inflation target for 2010 is 4.5
percent, plus or minus two percentage points.

Higher expectations for inflation could pressure the
central bank to hike the benchmark interest rate, the Selic,
currently at a record low 8.75 percent.

Brazilian policymakers meet Tuesday and Wednesday to
discuss possible changes to the rate, with a decision expected
after the close of markets on Wednesday.

Though analysts broadly expect the central bank to hold the
rate steady at this meeting, hikes could come as soon as March
of this year. [ID:nSPG002699]

Stock Market Investing

(Reporting by Luciana Lopez; editing by Jeffrey Benkoe)

CORRECTED – Brazil stocks, currency slide on caution, China clampdown