Brazil's stocks and currency extend losses
Brazil's stocks extended losses in afternoon trade on Wednesday, hurt by plunging Bovespa index futures contracts and a J.P. Morgan downgrade of European miners.
The Bovespa index of the Sao Paulo Stock Exchange was 3.5 percent lower at 23,110 points with about three hours to go before closing. Futures for the Bovespa index slipped and pressured the spot market, partly on fears high oil prices would spur domestic inflation and slow the economy.
"The futures market is really hitting the Bovespa right now. There's a sense the market was overbought and is going to settle at 23,000 points, down from 24,000 last week," said Paschoal Buonomo, an equities trader at the TOV brokerage in Sao Paulo.
Among individual stocks, the steel sector fell on the heels of a J.P. Morgan downgrade of European miners. CSN was 6.2 percent lower at 43.05 reais.
Phone company and bellwether stock Tele Norte Leste, which makes up about 12 percent of the Bovespa index, was down 2.4 percent at 38.55 reais.
Meanwhile, Brazil's currency, the real, weakened 0.81 percent to 2.843 per U.S. dollar as traders jockeyed to set the settlement price in advance of $378 million in hedging instruments expiring on Thursday.
Holders of the dollar-linked swaps, which are designed to prevent currency weakness and are settled in reais, reap greater returns when the real weakens.
"What's really driving the currency today is the anticipation of the swaps leaving the market," said Davi Azevedo, a currency trader at the Treviso brokerage in Sao Paulo.
Futures on the stock index are expiring later on Wednesday, with the next futures contract due Dec. 15. Arbitrage should keep the spot market in negative territory on Wednesday, but it should rebound once pressure from the futures market subsides, traders said.Local markets were closed on Tuesday for a holiday honoring Brazil's patron saint.
(From Reuters, October 13, 2004)
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