Brazilian Stocks Drop on Credit Concerns, Risk Aversion

By Alexander Ragir

Sept. 17 (Bloomberg) -- Brazilian stocks dropped to the lowest since August 2007 as global investors resumed their selling of emerging-market equities and the U.S. government's takeover of American International Group Inc. failed to ease concerns about the health of the financial system.

Uniao de Bancos Brasileiros SA led financial shares to the lowest in five months, as global banks began to report losses related to investments tied to the collapse of Lehman Brothers Holdings Inc. Cia. Vale do Rio Doce led a retreat in metals producers on speculation demand may wane as a 6.2 percent slump in U.S. home starts signaled a worsening of the economy.

The Bovespa index fell 780.43, or 1.6 percent, to 48,448.49 at 9:45 a.m. New York time. The BM&FBOVESPA MidLarge Cap index dropped 1.4 percent, while the BM&FBOVESPA Small Cap index retreated 1.6 percent. Mexico's Bolsa Index lost 0.6 percent.

Unibanco, as the third-biggest non-state Brazilian bank is known, fell 2.4 percent to 17.71 reais. Banco do Brasil SA, Latin America's biggest bank, dropped 3.1 percent to 21.15 reais.

The Federal Reserve said yesterday it will lend as much as $85 billion to AIG, giving the government a 79.9 percent stake in the company. A ``disorderly failure'' could compound declines in financial markets, lead to higher borrowing costs and dent economic growth, the Fed said. AIG's collapse would have threatened more financial companies and cost them $180 billion in losses, according to RBC Capital Markets. AIG shares dropped 43 percent today.

Credit concerns prompted investors to flee global stocks to the relative safety of U.S. Treasuries, driving the yield on three-month bills to the lowest in 54 years.

BRICs

Russia, one of the so-called BRICs, halted stock trading for a second day and poured $44 billion into its three biggest banks in a bid to halt the biggest financial crisis since its devaluation and debt default a decade ago. China's stocks fell to the lowest in almost 21 months after China Merchants Bank Co. said it held $70 million of debt issued by bankrupt Lehman Brothers Holdings Inc.

Investors turned the most negative in emerging-markets equities since 2001, a monthly survey by Merrill Lynch & Co. showed. Emerging markets are the least favorable place to invest in equities, with the survey showing a net 14 percent of those surveyed would most like to underweight the region over the next 12 months. The MSCI Emerging Markets Index dropped 0.7 percent today for a 37 percent loss this year.

Vale dropped 2.7 percent to 33.93 reais. Usinas Siderurgicas de Minas Gerais SA, Brazil's second-biggest steelmaker, fell 3.6 percent to 39.82 reais.

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net;