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Brazil stocks sink in late trade on US rate woes

RIO DE JANEIRO: Brazilian stocks fell below psychological support levels in late trade on Friday as a nervous market tracked Wall Street lower on concerns about a possible large interest rate increase in the United States, traders said.

Emerging markets across the globe have been jumpy ahead of a meeting next week of the US central bank's rate-setting Federal Open Market Committee (FOMC). If rates are raised more than expected, it could undermine foreign investment in riskier developing countries like Brazil.

"Everyone is watching Wall Street," said Carlos Hokama, a fund manager at Credibanco. "The things in (Brazil's) Congress are favourable as far as they go, but they had been expected."

The Sao Paulo Stock Exchange's leading Bovespa share index erased early gains made on optimism about the government's victories in Congress to close 2.03 percent lower at 16,734 points, dragged down by Wall Street losses.

The Dow Jones industrial average fell sharply before the Brazilian bourses closed on newly released economic indicators that showed strong inflationary pressures. The figures could lead to a larger-than-expected US interest rate increase.

The shares of heavyweight Telebras, a basket of shares in the 12 holding companies of the former nationwide telephone system, set the trend, dropping 2.25 percent to 235 reais.

Overall turnover of 906 million reais was higher than in recent sessions as investors lightened positions in Brazilian stocks ahead of the US rate meeting.

The shares of jetmaker Embraer soared for the second straight session, gaining 2.77 percent to 7.8 reais, after announcing a $1.8 billion contract to sell commuter aircraft to US-based Mesa Air Group.

Petrochemical company Copene also bucked the downward trend with a 1.98 percent gain to 619 reais after posting healthy 1999 year-end earnings. The Bovespa ended the week with a 0.28 percent gain, but the index is still down 0.06 percent so far this month after profit-taking wiped out the advances made earlier in January when the index hit a record high of 18,099.-Reuters