Brazil's Real Falls as U.S. Retail Drop Cuts High-Yield Demand

By Drew Benson

Oct. 15 (Bloomberg) -- Brazil's real sank 5.9 percent, the most in a week, as a government report showed U.S. retail sales plunged last month, evidence the global credit crisis has begun to deepen a slowdown in the world's biggest economy.

``What we see verifies that the American scenario is worsening,'' said Vanderlei Arruda, who manages the foreign- exchange trading desk at Sao Paulo-based Corretora Souza Barros. ``That's reflected in the U.S. stock market and, automatically, in Brazil, where we see investors moving from the stock market to dollars.''

The real sank to 2.2265 per dollar at 5:17 p.m. New York time, from 2.0963 yesterday, halting a two-day rebound that had driven it up almost 10 percent. Brazil's currency is down 14.5 percent this month and 29.9 percent from a nine-year high reached on Aug. 1. Brazil's central bank bought reais in the currency market for a second straight day to stem the currency's slide.

``All of the high-yielders are getting killed today,'' said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York. ``Across emerging markets, you're going to see currencies ebb and flow with risk aversion.''

Brazil's central bank bought $1 billion worth of reais in two repurchase agreement, or repo, auctions. The central bank also said it sold 26,710 currency swaps contracts to shore up the real. The bank plans to buy another $1 billion worth of reais of 6-month repos tomorrow.


Retail Sales Slump

Demand for reais declined after a U.S. government report today showed retail sales fell 1.2 percent in September, the most since August 2005. A government report today showed that retail sales also softened in Brazil, Latin America's biggest economy, in August. Sales rose 9.8 percent in August, down from 11.3 percent growth in August.

Global stock markets extended declines after the U.S. report, further curbing demand for higher-yielding securities. Brazilian stock trading was halted after the Bovespa index plunged 10 percent on concern slowing global growth will crimp companies' profit and erode demand for raw materials.

Deutsche Bank AG now expects the Brazilian economy to expand 2.2 percent in 2009, compared with a previous forecast of 3.6 percent.

The yield on Brazil's overnight futures contract for January 2009 delivery was unchanged at 13.93 percent today. The yield on the government's zero-coupon bond due in January 2010 rose 11 basis points, or 0.11 percentage point, to 14.85 percent, according to Banco Votorantim.

To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net