EMERGING MARKETS-Brazil real drops to weakest in 12 years on fiscal worries
SAO PAULO, July 24 (Reuters) - Brazil's currency, the real, plunged to its weakest level in 12 years on Friday as investors continued to digest the government's recent announcement that it would slash its fiscal savings goals. Other Latin American currencies sank as well, driven partly by weak Chinese manufacturing data. Equity markets fell across the region, with Brazil's Bovespa index dropping for the sixth straight session. 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. 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 should it fail to successfully tighten its budget, which could undermine investor confidence and raise borrowing costs. The real dropped about 1.1 percent to 3.33 per dollar, a level it has not crossed since April, 2003. Traders said Friday's move was a continued reaction to Wednesday's announcement. Stocks also fell, with the Bovespa index on track to post a nearly 7 percent weekly decline, its worst weekly performance of the year. Brazil's most widely traded stocks, which attract a large share of foreign investors and tend to be more sensitive to risk appetite, fell across the board. Shares of lenders Itau Unibanco SA and Banco Bradesco SA both sank about 2 percent. Yields on Brazilian interest rate futures <0#DIJ:> rose sharply across the curve after central bank director Luiz Pereira said the bank's vigilance on inflation is "paramount," which some investors interpreted as a signal that more interest rate hikes are on the horizon. "All together, we believe that (Pereira) clearly suggested a 50 basis-point hike and markets are moving in this direction this morning," wrote Barclays economist Bruno Rovai. Elsewhere in Latin America, the Chilean peso declined after a survey showed Chinese manufacturing contracted by the most in 15 months in July. China is a top purchaser of Chile's main export, copper. Key Latin American stock indexes and currencies at 1602 GMT: Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 909.16 -1.56 -3.42 MSCI LatAm 2265.49 -2.6 -14.73 Brazil Bovespa 48669.74 -2.28 -2.67 Mexico IPC 44408.89 -0.95 2.93 Chile IPSA 3847.84 -0.61 -0.08 Chile IGPA 18732.46 -0.5 -0.73 Argentina MerVal 11192.51 -3.72 30.46 Colombia IGBC 9918.52 -0.65 -14.75 Venezuela IBC 0 0 -100.00 Currencies daily % YTD % change change Latest Brazil real 3.3318 -1.10 -20.24 Mexico peso 16.225 -0.10 -9.13 Chile peso 660.9 -0.74 -8.25 Colombia peso 2849 -0.59 -16.18 Peru sol 3.1891 -0.03 -6.59 Argentina peso 9.1675 -0.03 -6.74 (interbank) Argentina peso 14.45 1.31 -3.11 (parallel) (Reporting by Asher Levine; Editing by Dan Grebler)
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