Brazil Real Drops as European Officials Meet to Contain Crisis

Brazil’s real fell, headed to a fourth weekly decline, as European policy makers struggle to find solutions to contain the region’s debt crisis that is slowing global economic growth.

The real dropped 0.2 percent to 1.7098 per dollar at 10:42 a.m. New York time, from 1.7069 yesterday. It’s down 2.1 percent this week, the second-worst performer among six major Latin American currencies tracked by Bloomberg after Chile’s peso.

European finance ministers began meeting in Wroclaw, Poland, to discuss ways of shoring up Europe’s most-indebted nations, with U.S. Treasury Secretary Timothy Geithner in attendance.

“On days like this, the market gets nervous,” Alfredo Barbutti, an economist at Sao Paulo-based brokerage Liquidez DTVM Ltda., said in a telephone interview. “The euro is falling and this would be sufficient to weaken the real.”

Yields on most interest-rate futures contracts rose after Brazil raised a tax on cars with a high content of imported components to protect jobs following a surge in shipments from China. Investors are concerned the measure will add to pressure on inflation, said Zeina Latif, senior economist at RBS Securities in Sao Paulo.

Yields on the interest-rate futures contract due in January 2014 rose two basis points to 11.04 percent.

Industrial Tax

Finance Minister Guido Mantega lifted the so-called industrial products tax on carmakers by 30 percentage points, except for those who source 65 percent of their parts from the Mercosur trade bloc or Mexico. The measure will raise the cost of imported cars by as much as 28 percent, and force foreign automakers to build key components in Brazil, he said.

“Instead of adopting a positive agenda, the government penalized the consumer,” said Zeina Latif, senior economist at RBS Securities in Sao Paulo. “This diminishes growth potential and increases the rate needed for equilibrium in the economy,” Latif said, referring to the level of interest rates needed to combat inflation.

Brazil also tweaked regulations on a new tax on some currency derivative contracts so financial agents start collection in December, two months later than initially planned, Mantega said today.

“It barely changes anything,” Mantega told reporters today in Brasilia.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net Josue Leonel in Sao Paulo at jleonel@bloomberg.net;

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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