20000220Brazil stocks plunge on Wall Street, option worries

SAO PAULO: Brazilian stock prices fell sharply on Friday as a plunge on Wall Street pressured the market just as investors were preparing for an options expiry on Monday, traders said.

The Sao Paulo Stock Exchange's leading share index Bovespa finished 1.97 percent lower at 17,625 points. The Dow Jones industrial average was down by more than 300 points or 2.9 percent at the time the Brazilian bourse closed.

"Things were bad. The drop on Wall Street forced more investors to sell shares here ahead of Monday's options expiry," said John Carioba, chief trader at Indusval brokerage in Sao Paulo.

US stocks tumbled as investors fretted over Federal Reserve Chairman Alan Greenspan's warning the previous day that more interest rate hikes may be in the pipeline to cool down the booming US economy.

Higher US interest rates are unwelcome in Brazil as well, as they are expected to slow down foreign investment flows to emerging markets.

US rate fears also shook Brazil's currency market Friday and the real ended 0.3 percent weaker at 1.779 per dollar.

Brazilian shares fell across the board, with the market's No.1 blue chip Telebras' preferred receipt leading the pack. It lost 2.6 percent to close at 254.5 reais.

Traders said the basket issue grouping the units of formerly state-owned telephone giant Telebras was also luring sellers because the receipt was due to expire in April.

"Investors are beginning to sell the issue as there won't be anything to roll over to," Carioba said.

Telebras receipts, which account for about 40 percent of daily trade, were created after the 1998 division and privatisation of Telebras.

State-owned oil and gas giant Petrobras, which rallied earlier this week on the back of surging oil prices, lost 1.2 percent to 444.5 reais on Friday, while iron ore miner Cia Vale do Rio Doce lost 2 percent to close at 48.5 reais.

Turnover on the bourse was a moderate 936 million reais ($526 million). By Friday's close, the Bovespa index was still up 7.6 percent on the month and up 3 percent on the year. -Reuters