Brazil's Real Drops to 13-Month Low on Slowdown, Export Outlook

By Adriana Brasileiro

Oct. 2 (Bloomberg) -- Brazil's real fell to a 13-month low on concern slowing global economic growth will curb demand for local exports and financial assets.

``Investors are eliminating any structural positions they have in Brazil because the market is acting irrationally now and there is a lot of fear about the shape of the world economy,'' said Jorge Knauer, manager of the foreign-exchange trading desk at Rio de Janeiro-based Banco Prosper SA.

The real slumped 3.5 percent to 1.9845 per dollar at 10:26 a.m. New York time, from 1.9176 yesterday. It fell as much as 4.4 percent to 2.0015 per dollar, the weakest level since Aug. 31, 2007.

The euro's drop against the dollar to a 13-month low today also reduced demand for reais, Knauer said. The 15-nation currency fell for a fourth day, declining as much as 1.9 percent to $1.3748, after European Central Bank President Jean-Claude Trichet said the regional economy is ``weakening.'' Policy makers discussed cutting the main refinancing rate before deciding to hold it at a seven-year high of 4.25 percent.

In the U.S., stocks dropped for a second day after first- time applications for jobless benefits rose to the highest level in seven years and factory orders decreased more than economists expected, falling by the most in almost two years.

The data added to investor anxiety in emerging markets, Knauer added.

The yield on Brazil's zero-coupon bond due in January 2010 rose 3 basis points, or 0.03 percentage point, to 14.52 percent. The yield on Brazil's overnight futures contract for January 2009 delivery increased 2 basis points to 14 percent.

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net