Brazil's Real Has Biggest Weekly Decline Since September 2002

By Adriana Brasileiro

Oct. 3 (Bloomberg) -- Brazil's real dropped the most this week in six years as a deepening global credit crisis curbed investment in Latin America's biggest economy.

The currency erased gains today on speculation the $700 billion U.S. financial bailout won't be an economic cure-all. The real rose as much as 1.6 percent before the U.S. Congress passed legislation to unlock credit markets.

``I don't see a more consistent recovery of the currency, even after the approval of the rescue plan,'' said Gabriel Levy, an economist who helps manage 250 million reais ($123 million) at Sparta Administradora de Recursos, an asset-management firm in Sao Paulo.

The real sank 9.8 percent this week to 2.0440 per dollar at 5:29 p.m. New York time, from 1.8445 on Sept. 26. It's the steepest weekly decline since September 2002. The real fell 1.1 percent today, its third straight daily drop.

The real was the biggest loser against the dollar this week among the 16 most-active currencies tracked by Bloomberg. It's down 24 percent from a nine-year high reached Aug. 1.

Finance Minister Guido Mantega said today in Sao Paulo that he doesn't expect the real to return to ``excessively overvalued'' levels.

The government is studying ``creative ways'' to use the country's record international reserves to add liquidity to local credit markets, Mantega said. Brazil's foreign reserves reached $207.3 billion yesterday.

Falling commodity prices also contributed to losses in the real. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has fallen 29 percent from a record high on July 2.

Brazil is the world's biggest exporter of beef, orange juice, sugar and coffee. Commodities account for two-thirds of the country's exports, according to the Brazilian Foreign Trade Association in Rio de Janeiro.

The yield on Brazil's overnight futures contract for January 2009 delivery fell 1 basis point to 14 percent.

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