UPDATE 3-Moody's eyes Brazil downgrade to junk citing political risks

miércoles 9 de diciembre de 2015 20:03 GYT

(Adds comments from Moody's analyst)

By Bruno Federowski and Brad Haynes

SAO PAULO Dec 9 (Reuters) - Moody's Investors Service put Brazil's credit rating on review on Wednesday for a possible downgrade to junk status due to a severe economic recession, failed austerity efforts and rising risks of political paralysis.

Moody's said it based its decision on "worsening governability conditions" after Congress opened impeachment proceedings against President Dilma Rousseff.

If Moody's follows through with a downgrade in the usual three-month review period, it would be the second ratings agency to strip Brazil of its investment-grade status, following a cut by Standard & Poor's in September.

A second downgrade to junk is likely to trigger capital outflows because many foreign pension funds and other large investors are required to unload bonds once two separate agencies rate them as speculative grade.

A Moody's downgrade could drive some $1.6 billion of investments out of the Brazilian market, estimated Barclays economist Bruno Rovai.

The Brazilian real plunged to a record low in September after the S&P downgrade to junk, but the currency rebounded more recently as fears of sudden capital flight eased.

Local market reaction to Moody's move on Wednesday was largely imperceptible.   Continuación...