EMERGING MARKETS-Brazil's real slumps on political turbulence
SAO PAULO, March 19 (Reuters) - The Brazilian real fell to its weakest level in nearly 12 years on Thursday as political wrangling heightened investor concern over the outlook for fiscal reform in Latin America's largest economy. Most other currencies in the region weakened as well, with investors snapping up dollars after a broad decline in the U.S. currency following Wednesday's Federal Reserve policy statement. Brazil's President Dilma Rousseff rebuffed questions about a cabinet reshuffle on Thursday, a day after her education minister resigned following a heated argument with lawmakers, highlighting the president's fragile congressional coalition. "The political cost of making the (fiscal) adjustment keeps getting higher and the market doesn't like it," said Jaime Ferreira, head of currency trading at Intercam in Sao Paulo. Failure to pass key spending cuts and tax increases could lead to a sovereign credit rating downgrade and a major outflow of portfolio investments. Brazil's government has signaled that it is comfortable with the sharp depreciation of the real, which weakened over 19 percent against the dollar this year. "We have had a big correction in the exchange rate, which helps our competitiveness," Rousseff's chief of staff, Aloizio Mercadante, said on Thursday. Yields on Brazilian interest rate futures <0#DIJ:> rose as the weaker currency raised the outlook for inflation. Equity markets were broadly lower as investors took profits following a strong rally in the previous session. Wednesday's gains were sparked by signals from the Fed that it would wait longer to raise interest rates than many investors had expected. Brazil's Bovespa stock index fell about 1 percent, with losses concentrated in the shares that rose most sharply on Wednesday, including lender Itau Unibanco Holding SA and state-run oil producer Petroleo Brasileiro SA, known as Petrobras. The broader MSCI Latin American stock index fell about 0.5 percent. Key Latin American stock indexes and currencies at 1735 GMT: Stock indexes daily % YTD % Latest change change MSCI Emerging Markets 963.9 0.75 0.04 MSCI LatAm 2404.09 -0.54 -11.38 Brazil Bovespa 50984.22 -1.05 1.95 Mexico IPC 44011.66 -0.79 2.01 Chile IPSA 3863.14 -0.06 0.32 Chile IGPA 18845.9 -0.09 -0.13 Argentina MerVal 11085.359 -1.68 29.21 Colombia IGBC 9962.09 -0.15 -14.38 Peru IGRA 12615.25 -0.04 -14.73 Venezuela IBC 4704.73 0.78 21.92 Currencies daily % YTD % change change Latest Brazil real 3.2800 -2.05 -18.98 Mexico peso 15.274 -1.24 -3.47 Chile peso 639.75 -0.43 -5.21 Colombia peso 2625.54 0.11 -9.05 Peru sol 3.097 -0.26 -3.81 Argentina peso 8.7925 0.00 -2.76 (interbank) Argentina peso 12.83 1.01 9.12 (parallel) (Reporting by Asher Levine and Bruno Federowski; Editing by Diane Craft)
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