Brazil Market Falls 60% from Peak Performance in May

Brazil's Bovespa For the first time in three years, this Monday, October 27, Brazil's stock exchange, the Bovespa, closed below 30,000 points. This after a day that saw shares tumbling another 6.5% following four consecutive days of decline. In the last five days of operation alone, the Ibovespa, Bovespa's main index, lost over 25%.

The final number was 29.435 points. 3.08 billion reais (US$ 1.37 billion) were traded during Monday's session, a sign of market weakness and another showing of foreign investors flight. The Bovespa was trading double this amount in the first half of the year.

On the other hand, the dollar, which was moving up fast in recent weeks lost 3.14% of its value, closing at 2.255 reais per dollar. Thanks in part to an intervention in the greenback market by Brazil's Central Bank. The BC sold US$ 1,25 billion in US currency plus US$ 815 million in traditional swap exchange contracts. 

Brazilian investors were again scared by signs of recession in Europe and the US. Blue chips Petrobras, the state-controlled oil multinational, and mining company Vale suffered the impact of the commodities market drop overseas. Due to oil prices reduction in the world market Petrobras sank over 11%. Vale had losses totaling 8%.

Since the beginning of the year the Bovespa's accumulated losses total 54%. When you compare to the Ibovespa's peak, on May 20, when shares shot up to 73,516 points, the tumble is 59.96.

It was reported Monday that Bradesco and Itaú banks had profits of 1.9 billion reais (US$ 843 million) and 1.8 billion reais (US$ 799 million), respectively, in the third quarter. According to Economática, a consultancy firm, these numbers represent the third and fourth best quarterly profits in the history of Brazilian banks.

News of good performance by the largest Brazilian banks was not enough to wipe out the feeling of doom.  While Itaú shares were stable, those from Bradesco fell steeply.

The Central Bank, this Monday, also changed the rule of compulsory cash reserves in order to inject up to 6 billion reais (US$ 2.66 billion) in the Brazilian economy. The goal is to encourage banks to offer more credit to customers and other financial institutions.

Since the government announced, last week, a temporary measure allowing state banks Banco do Brasil and Caixa Econômica Federal to take over financial institutions in trouble the market was afraid that the authorities knew something bad that nobody else knew. Experts now seem more inclined to believe that the Lula administration act was only a preventive measure.

Gathered in Brazilian capital Brasí­lia, Economy ministers and Central Banks presidents from 12 South American countries agreed to take joint action to fight the international crisis.

For Celso Amorim, the Brazilian minister of Foreign Relations, the best way to deal with the meltdown is "to strengthen the integration patrimony" instead of adopting measures that bar the entry of foreign products. "The answer to the crisis is not protectionism, most especially within the Mercosur. The most suitable measures would be, more integration, more intra-regional trade, less subsidy and less distortion," he emphasized.

The South American representatives decided to intensify the exchange of information and to promote quicker communication between top executives to oversee the unfolding of the crisis. Each one of those involved agreed to define priority points that might be useful as basis for possible action.

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