EMERGING MARKETS-Brazil real underperforms after Moody's cuts country to junk
By Bruno Federowski SAO PAULO, Feb 24 (Reuters) - The Brazilian real underperformed weaker Latin American currencies on Wednesday after Moody's Investors Services became the latest ratings agency to cut the country's debt rating to junk, downgrading it by two notches. Market reaction was somewhat muted as many investors were prepared for a third downgrade after Standard & Poor's and Fitch Ratings stripped Brazil of its investment grade. Citing economic and political turmoil, Moody's downgraded Brazil's rating to Ba2 and indicated it could soon cut it again. The move came a week after S&P sliced Brazil's rating for a second time in less than six months, taking it further into junk territory. "The market expected a cut but the magnitude caught me by surprise," said Thiago Castellan Castro, a trader with Renascença brokerage in São Paulo. Nevertheless, traders saw limited room for weakness, pointing out that Brazilian credit default swaps (CDS) had been trading at levels consistent with a lower rating even before the downgrade. The Brazilian real fell more than 1 percent, compared to a 0.6 percent drop in the Mexican peso and the Colombian peso. Both currencies followed oil prices lower for a second day after comments by the Saudi oil minister dashed hopes of an output cut. Moody's downgrade pressured shares of Brazilian banks, weighing on the Bovespa stock index. A decision to reduce dividend payouts to investors to 25 percent of net income this year also helped drag shares of Banco do Brasil SA lower. Shares of state-controlled oil company Petroleo Brasileiro SA, whose rating will likely also be lowered soon on the back of the sovereign downgrade, fell almost 5 percent. Latin American stock indexes and currencies at 1430 GMT: Stock indexes daily % YTD % change change Latest MSCI Emerging Markets 733.40 -1.53 -6.22 MSCI LatAm 1744.59 -2.42 -2.29 Brazil Bovespa 41407.64 -2.62 -4.48 Mexico IPC 42678.13 -1.25 -0.70 Chile IPSA 3701.10 -0.41 0.57 Chile IGPA 18175.21 -0.36 0.13 Argentina MerVal 12240.17 -2.33 4.84 Colombia IGBC 8933.46 -0.69 4.52 Venezuela IBC 16416.02 0.77 12.53 Currencies daily % YTD % change change Latest Brazil real 4.0056 -1.13 -1.46 Mexico peso 18.3250 -0.65 -5.98 Chile peso 699.2 -0.51 1.50 Colombia peso 3343.95 -0.60 -5.22 Peru sol 3.54 -0.28 -3.56 Argentina peso (interbank) 15.2500 0.66 -14.87 Argentina peso (parallel) 15.45 -0.13 -7.64 (Additional reporting by Paula Arend Laier; Editing by Meredith Mazzilli)
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