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Brazil's real ends weaker amid US rate worries

SAO PAULO: Brazil's real currency finished 0.28 percent weaker at 1.79 per dollar Tuesday as investors remained nervous while a key interest rate-setting meeting was in progress in the United States, traders said.

The foreign exchange market was also nervous over news that Minas Gerais state was scrambling to reach a debt agreement with the federal government to avoid having the state default on $108 million in Eurobonds falling due February 10. "Worries that US rates might be raised forced some investors to stock up on dollars and protect themselves from a possible jump in the dollar in the future," said one trader at a foreign bank.

The US Federal Reserve's policy-setting body Federal Open Market Committee (FOMC) began meeting Tuesday.

The FOMC is widely expected to raise its short-term federal funds rate by 25 basis points to 5.75 percent, a move that could slow down foreign investment in emerging markets like Brazil. The Fed will announce its decision Wednesday afternoon.

Meanwhile, investors also fretted after Brazilian bonds traded overseas fell on worries that the federal government may not help Minas state make its upcoming Eurobond payment.

Minas declared a moratorium last year and contributed to Brazil's currency devaluation, which sent the real sliding more than 35 percent against the dollar.

Minas said last month it lacked the cash to meet the upcoming Eurobond payment, but state officials were currently in talks to transfer responsibility for the payments to the central government. "The federal government will pay...That is what is being negotiated," a spokesperson for Minas state's Finance Ministry said.-Reuters