EMERGING MARKETS-Brazil real drops to weakest in 12 years on fiscal worries

SAO PAULO, July 24 (Reuters) - Brazil's currency, the real,
plunged to its weakest level in 12 years on Friday as investors
continued to digest the government's recent announcement that it
would slash its fiscal savings goals.
    Other Latin American currencies sank as well, driven partly
by weak Chinese manufacturing data. Equity markets fell across
the region, with Brazil's Bovespa index dropping for the
sixth straight session.
    Late on Wednesday Brazil's government cut its primary
surplus goal for this year to 0.15 percent of gross domestic
product, from the originally budgeted equivalent of 1.1 percent
of GDP. 
    The primary surplus, or revenue available to meet interest
payments on debt, is closely watched by markets and credit
rating agencies as a gauge of a country's capacity to repay its
debt. The agencies have warned they may further downgrade Brazil
should it fail to successfully tighten its budget, which could
undermine investor confidence and raise borrowing costs. 
    The real  dropped about 1.1 percent to 3.33 per
dollar, a level it has not crossed since April, 2003.
    Traders said Friday's move was a continued reaction to
Wednesday's announcement.
    Stocks also fell, with the Bovespa index on track to post a
nearly 7 percent weekly decline, its worst weekly performance of
the year.
    Brazil's most widely traded stocks, which attract a large
share of foreign investors and tend to be more sensitive to risk
appetite, fell across the board. Shares of lenders Itau Unibanco
SA and Banco Bradesco SA both sank about 2
    Yields on Brazilian interest rate futures <0#DIJ:> rose
sharply across the curve after central bank director Luiz
Pereira said the bank's vigilance on inflation is "paramount,"
which some investors interpreted as a signal that more interest
rate hikes are on the horizon. 
    "All together, we believe that (Pereira) clearly suggested a
50 basis-point hike and markets are moving in this direction
this morning," wrote Barclays economist Bruno Rovai.
    Elsewhere in Latin America, the Chilean peso declined
after a survey showed Chinese manufacturing contracted by the
most in 15 months in July. China is a top purchaser of Chile's
main export, copper.
    Key Latin American stock indexes and currencies at 1602 GMT:
 Stock indexes                        daily %    YTD %
                             Latest    change   change
 MSCI Emerging Markets        909.16    -1.56    -3.42
 MSCI LatAm                  2265.49     -2.6   -14.73
 Brazil Bovespa             48669.74    -2.28    -2.67
 Mexico IPC                 44408.89    -0.95     2.93
 Chile IPSA                  3847.84    -0.61    -0.08
 Chile IGPA                 18732.46     -0.5    -0.73
 Argentina MerVal           11192.51    -3.72    30.46
 Colombia IGBC               9918.52    -0.65   -14.75
 Venezuela IBC                     0        0  -100.00 Currencies                           daily %    YTD %
                                       change   change
 Brazil real                  3.3318    -1.10   -20.24
 Mexico peso                  16.225    -0.10    -9.13
 Chile peso                    660.9    -0.74    -8.25
 Colombia peso                  2849    -0.59   -16.18
 Peru sol                     3.1891    -0.03    -6.59
 Argentina peso               9.1675    -0.03    -6.74
 Argentina peso                14.45     1.31    -3.11

 (Reporting by Asher Levine; Editing by Dan Grebler)

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