Brazil shares fall on political, currency concerns:
SAO PAULO, Aug 19 (Reuters) - Brazilian shares opened
weaker on Thursday as traders saw scarce demand for stocks amid mounting market concerns over political support for the government's austerity policies and a weakening real currency.
Sao Paulo's benchmark Bovespa index (^BVSP - news) of blue chip companies was 0.92 percent lower in early trade on Thursday after Wednesday's sharp 2.4 percent loss.
''There is no motivation to buy shares in the current political situation,'' said one trader.
''(President Fernando Henrique) Cardoso and (Central Bank Chairman Arminio) Fraga are admitting that the situation is bad and they demonstrate their weakness,'' said one trader.
Cardoso's waning popularity in recent polls and mounting political opposition have fueled concerns the government may not garner support for the measures needed to stem Brazil's yawning fiscal gap.
Pressure on the government to forgive debt and extend fresh loans to Brazil's farmers, peaking in a
protest in Brasilia this week, is also weighing on markets, traders said.
Cardoso said in a television address on Wednesday night he would not give in on debt pardon and
would veto the bill.
''He can go all the way saying he vetoes it, but he needs to have support for that, which he doesn't
have,'' said one trader.
The real currency (BRBY - news) which fell 1.42 percent on Wednesday, was weaker again on Thursday, fetching 1.915 in early trade, despite Wednesday's Central Bank's intervention and chairman Fraga's promise to remove tax on foreign financial transactions to lure more dollars into the country.
The plight of Brazil bodes ill for Argentina
Escalating monetary, political stock market problems in Brazil will flow over the border infecting the Argentine economy, which has already incurred significant damage since the beginning of the year when the Brazilian real devlaued 40%. Eventually and inevitably the Argentine will succumb to economic pressures and be forced to devalue the peso.
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