Brazil Leads LatAm Markets Down

Latin American stocks plunged Monday — led by a precipitous drop in Brazilian shares — on concerns that the world is descending into a severe economic slowdown that could devastate the region's commodities-based economies and reverse hard-won gains for working people.

Trading was halted twice on Sao Paulo's Ibovespa index after stocks sank 10 percent, and then fell another 5 percent -- reaching their lowest level in two years.

Brazil's currency, the real, slumped nearly 7 percent to a level not seen since early 2007. (Check currencies here)

The Ibovespa then recovered lost ground but was still down 7.3 percent in the late afternoon, at 41,250.

Argentina's Merval was off 10.9 percent at 1,348, while Mexico's IPC index fell 5.4 percent to 21,751.

Chile's IPSA was down 6.6 percent to 2,437, and Colombia's IGBC fell 4.9 percent to 8,761.

Mexico's peso slid to 11.8 against the U.S. dollar, a sharp drop from 11.1 on Friday and the lowest since the government lopped three zeros off all currency denominations in 1993 to create a "new peso." Across the region, panicky traders had no idea when an end will come to the market carnage brought on by the U.S. mortgage default debacle.

"We didn't believe the volatility and uncertainty would so quickly reach the levels we've seen in the last few months," said Ociel Hernandez, an economic analyst with the Bancomer bank in Mexico City.

"We're in the high part of a risky transition, the consequences of a global economic collapse." That collapse could squeeze the region's middle classes, which have emerged during years of economic growth that enabled Latin American nations to spend lavishly on social programs and ease the historic gap between haves and have-nots.

"We're confronting an international economic crisis that's unprecedented for many years, and it's obviously going to make the management of economic policy much more complicated for all nations," Colombian Finance Minister Oscar Ivan Zuluaga said.

Monday's losses come on top of steep market declines for Latin American markets during three sessions last week.

It was the second time in a week that the Ibovespa has fallen more than 10 percent in intraday trading.

Brazilian equities have been the hardest hit because the nation's stocks had been pumped the highest for years with massive inflows of cash.

Now foreign investors, who gushed about Brazil's apparent immunity from the downturn only months ago, are dumping shares in favor of investments seen as less risky.

Latin America must "realize that competition for capital is going to intensify," U.S. Commerce Secretary Carlos M. Gutierrez told reporters Monday ahead of a trip to Brazil this week.

The Ibovespa is now down 34 percent for all of 2008.

• Selected LatAm Indexes Listed Here

And it has lost 22 percent since Sept. 19, when Brazilian President Luiz Inacio Lula da Silva shrugged off questions about the impact of the U.S. financial crisis on Latin America's largest economy by telling reporters to "go ask Bush" about it.

Silva called an emergency economic meeting with his finance minister and the nation's central bank president, and the Bovespa stock exchange enacted a new rule calling for a trading halt lasting hours if Ibovespa losses hit 20 percent.

A worldwide slowdown would be extremely bad news for Latin America, where economies have registered strong gains for five years because of high global demand for commodities.

Many of Latin America's large companies are huge exporters of agricultural products such as soy and beef, and of metals such as copper and iron ore.

Sagging consumer markets could stem demand.

It's hard to predict how much farther shares of big Brazilian companies may fall, said Alexandre Jorge Chaia, a finance professor at the Ibmec-SP university in Sao Paulo.

"It's difficult to specify a floor," Chaia told Brazil's Globo TV.

"It all depends on demand for commodities, and Brazil depends a lot on commodities." But some poor Latin Americans say they have it so bad, the crisis can't make their lives worse.

"This only makes people who have money nervous," 60-year-old Jose Martinez said with a shrug outside a money-changing business in Mexico City. "I'm poor, so what?"

• Selected LatAm Indexes Listed Here

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