FOCUS-Brazil stocks hit 9-mo. low, currency steady
Reuters, Tuesday, August 11, 1998 at 21:47
By Shasta Darlington
SAO PAULO, Aug 11 (Reuters) - Brazilian markets were rocked
on Tuesday after more unfavorable economic news from abroad,
with stocks plunging to a nine-month low and the currency
stumbling, then regaining its feet amid reports of intervention
by the central bank.
The blue-chip Bovespa index (INDEX:$BVSP.X) tumbled 4.14 percent
after more overnight market instability in Russia and Japan.
The slide marked the Brazilian index's eighth consecutive day
in negative territory and extended its losses for the year to
more than 13 percent.
The Brazilian currency, the real, held up despite morning
nervousness. Brokers speculated that the Central Bank
intervened by indirectly selling dollars to offset any
perception that Brazil was facing mounting pressure to
devaluate its currency.
Brazil's real is closely watched in times of market
upheaval, as the country shares some of the traits of the
Southeast Asian countries that were forced to devalue last
fall: huge fiscal deficits, a trade gap and a closely
regimented currency.
A sharp devaluation could likely trigger a regional crisis
that would dwarf the meltdown of the Mexican peso in 1994.
On Tuesday morning, the tightly controlled Brazilian real
jerked lower against the dollar in spot and futures trade, but
it bounced back before lunch.
Officials pointed to the currency's stability as a sign
that pressure from abroad would be limited to the stock market.
"For the time being, this is an equities phenomenon. It has
not had any affect on the currency, which is what is most
important," a Finance Ministry spokesman said.
Still, dollar traders attributed the real's strong rebound
to heavy dollar-selling by federally-owned Banco do Brasil on
behalf of the Central Bank.
The real is widely regarded to be overvalued by between 10
percent and 30 percent. Economists say Brazil may not be able
to resist devaluation should China take that option in response
to an ever-weakening Japanese yen.
The Brazilian real opened 0.16 percent weaker at 1.1708
reais per dollar from 1.1689 at Monday's close. But it
strengthened to 1.1688 reais by the market's close.
"The market opened very nervous, but it is a lot calmer now.
There are rumors Banco do Brasil was selling dollars for the
Central Bank, which they have done in the past," said a forex
trader at an international bank.
The speculation was backed by the fact that there was a net
outflow of dollars from Brazil on Tuesday, a phenomenon that
usually weakens the real.
Traders said Banco do Brasil may have sold up to $300
million Tuesday to bolster the real. By comparison, the Central
Bank sold between $8 billion and $10 billion to support the
real during one week last October and November at the height of
the Asian crisis.
Brazil, in contrast with many emerging nations, has a huge
foreign reserve war chest of around $70 billion, and thus is
better able to defend its currency.
The Central Bank would not comment on the Banco do Brasil
selling rumors or the declining stock market. "If anyone says
anything, it will be at the end of day," a Central Bank
spokesman said in Brasilia.
shasta.darlington@reuters.com))
Copyright 1998, Reuters News Service |
