Brazil Roller Coaster: Stocks 10% Down, Dollar 7% Up

Brazil's Bovespa Dragged down by the bearish behavior of international markets and fears of a global recession, the Brazilian stock market tumbled over 10% this Wednesday, October 22. Losses intensified at the end of the trading session reflecting the losses of the Dow Jones in Wall Street.

For the sixth time in the last three weeks, the Bovespa, São Paulo's Stock Exchange, stopped operation for half an hour, after the automatic circuit breaker was activated, something that happens when the Ibovespa, Bovespa's  index, declines by 10%.

One of the reasons for the pessimistic scenario was a statement by the British premier. Gordon Brown, admitting that the United Kingdom wouldn't be spared the recession.
Bovespa's bad day was due in part to  shares tied to commodities and banks. Oil multinational Petrobras' stocks, for example, dropped 9.59%, while mining company Vale saw its shares plummeting 7.8%.

Bad news didn't come only from overseas, however. The publication in the federal newspaper Daily Gazette (Diário Oficial) of temporary measure 443 led the market to fear interference of the state in the banking system.

The presidential measure opens the doors for the Banco do Brasil and Caixa Econômica Federal, two state-owned financial institutions, to buy directly or through their subsidiaries, banks headquartered in Brazil. This would allow the government to take over banks in financial trouble.

Brazilian Finance minister, Guido Mantega, made it clear that people shouldn't read too much into the new temporary measure, denying that any bank in Brazil is on the verge of collapse. In his press conference, Mantega tried to calm the market. "There is no bank breaking in this country," he said.

Despite the minister's assurances, however, Banco do Brasil's shares lost 15.4%, falling to 13.88 reais, while another bank, Unibanco, saw its stocks declining 13.7% to 12.72 reais. Two companies from the building sector also stumbled badly: Gafisa dropped 17,2%, to 15.12 reais and Cyrela slipped 16.1%, to 10.40 reais.

At the end of the day, on Wednesday, the Ibovespa had fallen a healthy 10.18% to sobering 35,069 points, the lowest in over two years. With yesterday's  collapse, the Brazilian market has now declined over 45% since the beginning of 2008. The Ibovespa had finished 2007 at 63,886 points.

Meanwhile the dollar started to zoom up again.  Ignoring measures from the Brazilian Central Bank to contain the greenback, the American currency went up 6.67%, closing at 2.38 reais.

Early afternoon, the Central bank sold US$ 216.1 million in swap exchange contracts with periodic adjustment. Another US$ 299.5 million were sold later in the day.

According to the Central Bank president, Henrique Meirelles, Brazil has already used US$ 22.8 billion to contain the dollar since the aggravation of the recent crisis in mid September when the American bank Lehman Brothers folded.


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