EMERGING MARKETS-Brazil markets tumble after government slashes savings goal
(Updates to close, adds other Latin American markets, new quote) SAO PAULO, July 23 (Reuters) - Brazil's currency, the real, tumbled on Thursday after the government announced it would slash its fiscal savings goals for this year and next, raising investor fears that the country may lose its investment-grade credit rating. The real closed 2.2 percent lower at 3.29 per dollar, its lowest level in four months. Stocks also fell, with the country's benchmark Bovespa index erasing its gains for the year. Late on Wednesday Brazil's government cut its primary surplus goal for this year to 0.15 percent of gross domestic product, from the originally budgeted equivalent of 1.1 percent of GDP. Markets on Wednesday anticipated the announcement based on initial reports of the plans, driving the real 1.6 percent lower. The actual cuts announced after markets closed were bigger than many investors had expected. "The sizes of the cuts were very surprising," Nomura analysts Joao Pedro Ribeiro and Benito Berber wrote in a client note. "Indeed, they raised questions not only about Brazil's very short-term fiscal standing but also its ability, in a politically turbulent environment, to implement the needed fiscal consolidation to avoid a downgrade to junk." The primary surplus, or revenue available to meet interest payments on debt, is closely watched by markets and credit rating agencies as a gauge of a country's capacity to repay its debt. The agencies have warned they may further downgrade Brazil, a move which could undermine investor confidence and raise borrowing costs. The government also reduced its fiscal savings goal for 2016 to 0.7 percent of GDP from a previous goal of 2 percent. Meanwhile, Brazil's Bovespa stock index posted its biggest one-day drop in nearly two months, falling 2.18 percent to 49,806 points and putting it into negative territory for 2015. Shares of banks and financial firms led losses on the index, with Itau Unibanco SA dropping 4.2 percent and rival Banco Bradesco SA sinking 4.4 percent. Investors are worried that a further deterioration of Brazil's economy could lead to higher non-performing-loan rates and diminished credit quality. Moves in other Latin American markets were more muted, with Mexico's IPC stock index closing about 0.4 percent higher and Chile's IPSA index about 0.5 percent lower. In currency markets, Colombia's peso sank about 1.6 percent, partly driven by lower prices for oil, the country's main export. Key Latin American stock indexes and currencies at 2107 GMT: Stock indexes Latest Daily YTD pct pct change change MSCI Emerging Markets 923.56 -0.81 -3.42 MSCI LatAm 2325.87 -2.37 -14.73 Brazil Bovespa 49,806.62 -2.18 -0.40 Mexico IPC 44,836.33 0.37 3.92 Chile IPSA 3,871.28 -0.51 0.53 Chile IGPA 18,825.98 -0.37 -0.24 Argentina MerVal 11,625.229 -0.48 35.51 Colombia IGBC 9,983.15 0.23 -14.19 Venezuela IBC 14,989.39 -0.18 288.45 Currencies Latest Daily YTD pct pct change change Brazil real 3.29 2.2 -19.10 Mexico peso 16.2151 -0.03 -9.07 Chile peso 656 -0.34 -7.56 Colombia peso 2,832.25 0.00 -15.69 Peru sol 3.1871 0.03 -6.53 Argentina peso 9.1625 -0.03 -6.68 (interbank) Argentina peso 14.59 2.06 -4.04 (parallel) (Reporting by Bruno Federowski and Asher Levine; Editing by Walter Brandimarte, Chizu Nomiyama and Andrew Hay)
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