Brazil's Real Falls as Recession Concerns Damp Risk Appetite

By Adriana Brasileiro

Nov. 6 (Bloomberg) -- Brazil's real weakened on concern global economic growth will slow, curbing demand for the nation's commodity exports and local financial assets.

The real fell 0.2 percent to 2.1342 per U.S. dollar at 8:23 a.m. New York time, from 2.1295 yesterday. Brazil's currency fell 12 percent in October, its third consecutive monthly loss. It has lost 27 percent from a nine-year high of 1.5545 per dollar reached on Aug. 1.

``We know the economic slump will get worse and will hurt inflows to Brazil, and these central bank moves are a reminder of how serious the situation is,'' said Reginaldo Galhardo, currency trading manager at Treviso Corretora de Cambio in Sao Paulo.

The Bank of England unexpectedly cut its benchmark interest rate by 1.5 percentage points to 3 percent today to the lowest since 1955 in a bid to contain fallout from the worst banking crisis in almost a century.

The European Central Bank lowered interest rates for the second time in less than a month to counter the worst economic slump in 15 years in the euro zone. ECB policy makers reduced the rate by half a percentage point to 3.25 percent, in line with economists' estimates.

Stock declines around the world also kept investors away from real-denominated assets. European and Asian stocks fell and U.S. equity-index futures dropped as disappointing results from Toyota Motor Corp., Cisco Systems Inc. and Adidas AG added to speculation the economic slowdown will hurt corporate profits.

The yield on Brazil's zero-coupon bond due in January 2010 fell 4 basis points, or 0.04 percentage point, to 15.42 percent, according to Banco Votorantim. The yield on Brazil's overnight futures contract for January 2009 delivery rose 2 basis points to 13.75 percent.

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