Brazil real rallies on interventions, stocks slump

By Todd Benson

SAO PAULO, Oct 8 (Reuters) - Brazilian stocks slumped in volatile trade and the currency rallied after plunging to a 3-1/2-year low on Wednesday, helped by a slew of central bank interventions as fears about the global financial crisis hung over the market.

The Bovespa index of the Sao Paulo Stock Exchange tumbled for the fifth straight session, ending 3.85 percent lower at 38,593.54 points after falling as much as 6.3 percent. With the losses, the Bovespa has now plunged 48 percent since hitting an all-time high of 73,920 on May 29.

Trading was extremely volatile as fears persisted that the coordinated interest rate cuts by the world's leading central banks might not be enough to prevent the global economy from slipping into a recession.

"The coordinated actions by the central banks is not going to have a convincing effect on the credit crisis," said Jose Francisco de Lima Goncalves, chief economist at Banco Fator.

Brazil's currency, the real, also took a pounding early in the session but recovered after the central bank intervened four times to flood the market with dollars.

The real closed 0.74 percent stronger at 2.294 per dollar after plunging more than 8 percent to 2.53 in spot electronic trading at the BM&F commodities and futures exchange, its weakest intraday level since April 29, 2005.

The central bank helped the real snap a five-session losing streak by dipping into its international reserves for the first time in more than five years to sell dollars on the spot foreign exchange market.

It sold an unspecified amount of dollars in three separate auctions. Late in the session, the bank also sold $1.3 billion in dollar swap contracts, helping to nudge the real into positive territory.

"This is basically a tug-of-war between the central bank and the market. Today the bank decided to show that it has $210 billion in reserves as firepower," said Reginaldo Galhardo, a currency trader at Treviso Corretora, a Sao Paulo brokerage.

Despite Wednesday's gains, the real has still shed a third of its value since Aug. 1, when it hit a nine-year high. A weaker real threatens to stoke inflation in Brazil, meaning the central bank is unlikely to join other countries in cutting rates in the coming months.

Interest-rate futures on the BM&F commodities and futures exchange were mixed, with short-term contracts edging lower and long-term contracts rising.

At the stock exchange, energy and steel sector shares slumped on fears that a global economic slowdown will reduce demand for raw materials and oil, pushing the Bovespa index sharply lower.

State-run energy company Petrobras tumbled 5.65 percent to 26.70 reais as world oil prices fell more than $1 a barrel on concerns about the extent of the global financial crisis and rising U.S. inventories.

In the steel sector, Usiminas sank 8.24 percent to 26.50 reais while Gerdau tumbled 8.64 percent to 14.80 reais. Mining giant Vale also fell, sliding 0.77 percent to 25.80 reais.