(New throughout, updates prices, market activity and comments to close)
By Jamie McGeever
BRASILIA, March 16 (Reuters) - Brazilian stocks plummeted 13% and the currency shed 5% of its value to hit a new low against the dollar on Monday, as fears over economic and financial damage from the deepening coronavirus crisis hammered markets around the world.
Trading in the benchmark Bovespa index was halted after it fell 10% early in the session, the fifth automatic “circuit breaker” halt to trading in six trading sessions.
The Bovespa shed more than 10% for the third session in a week, bringing losses so far this month to 31.7% and to 38.5% year to date. The index is on course for its biggest monthly fall since August 1998
Brazil’s National Monetary Council unveiled measures to increase the flow of liquidity and credit throughout the financial system, including easier borrowing terms for households and businesses.
But local markets took their lead from global developments. Wall Street tumbled 12% and the U.S. stocks “fear gauge” VIX index closed at a record high, even after Sunday’s emergency rate cut and asset purchase announcement from the Federal Reserve.
“Global financial market stress is deepening ... and Brazil is hit hard as usual,” said Jose Francisco Goncalves, chief economist at Banco Fator in Sao Paulo.
“Signs of recession and government weakness to deal with its reform agenda and COVID-19 are frightening,” he said, adding that he expects “a brief recession and fiscal problems, due to the collapse in revenues.”
Among the biggest losers on the Bovespa were preferred shares in airline Azul SA, which plunged 37% to a record low after it said it would cut all international flights out of its main hub in Sao Paulo state.
Brazil’s real weakened 5% to 5.0680 per dollar, taking its decline against the greenback so far this year to 20%.
Currency traders priced in further volatility in the coming month - the highest level of volatility since 2018 - while rates markets factored in a 50 basis point rate cut later this week but a steep rise over the next several years to over 8%.
“It’s telling that risk assets have not responded positively” to the Fed’s emergency action. “In normal circumstances, a large policy response like this would put a floor under risk assets,” Societe General’s emerging market currency team wrote in a note on Monday.
“However, the size of the growth shock is becoming exponential and markets are rightfully questioning what else monetary policy can do and discounting its effectiveness in mitigating coronavirus-induced downside risks,” they said. (Reporting by Tatiana Bautzer and Gabriela Mello Editing by Daniel Flynn, Lisa Shumaker and David Gregorio)