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Latin American stock prices skid on currency worries

July 16, 1997

SAO PAULO, Brazil (AP) _ Fears that currency troubles in Asia would spread have sent stock prices skidding throughout Latin America.

Brazil, the world’s 10th-largest economy, was at the forefront of the plunge. The Sao Paulo stock market fell 8.5 percent Tuesday, the largest drop this year and the biggest since the 1994 Mexican peso collapse.

``You definitely have a contagion effect here,″ said Peter Greenbaum, senior Latin American economist with Smith Barney. ``Contagion effects normally run from the bigger to the smaller. Brazil is the biggest market, so fallout will be felt elsewhere.″

Tuesday’s drop in Sao Paulo followed a 3.5 percent loss on Monday, which traders attributed to foreign investors pulling their money out of Brazil to cover losses in Asia.

After recent currency devaluations in the Philippines and Thailand because of burgeoning trade deficits, investors throughout Latin America feared that Brazil, facing a similar problem, may follow suit.

Brazil’s Central Bank on Monday announced a whopping deficit of $15.6 billion in its broadest measure of trade for the first six months of the year. The figure was 4.19 percent of the country’s estimated $800 billion gross national product, well beyond the 2 percent most economists consider safe.

Following Brazil’s lead, stock exchanges in Mexico, Argentina, Venezuela and Peru also dropped sharply. In addition to worries about Brazil’s currency, traders attributed the selloff partly to investors taking profits after stock prices have escalated.

Gerardo Copca, a senior equity analyst with Valores Finamex, a Mexican brokerage, said people were looking for a profit-taking pretext. Copca dismissed any relationship between Asia’s troubles and Mexico’s drop.

Brazil’s government moved quickly to dispel fears of an imminent devaluation of its currency, the real.

Francisco Lopes, director of monetary policy for the Central Bank, said Brazil will not alter its exchange in light of the selloff or the Asian currency crisis.

Alfredo Rizkallah, president of the Sao Paulo exchange, also appeared calm. ``There’s nothing wrong with the stock market,″ he said. ``Profit-taking had been expected for some time.″

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