January 28, 2019 / 10:17 PM / 8 months ago

EMERGING MARKETS-Vale plunge on dam burst knocks Brazil stocks; Latam FX weak

 (Recasts throughout, updates prices)
    By Susan Mathew
    Jan 28 (Reuters) - Brazil stocks posted their sharpest
one-day drop in seven weeks on Monday thanks to a near
25-percent plunge in shares of miner Vale after a dam disaster,
while most other Latin American shares and currencies fell in
line with a global market slump. 
    The MSCI index of Latin American shares fell
 1.6 percent, its worst day since Dec. 10. A decline in the
currency index was capped by a 0.2 percent rise
in Brazil's real. 
    World stocks were battered after disappointing industrial
profits data from China deepened worries that the world's second
largest economy was cooling. 
    The fears were further underscored by warnings from U.S.
manufacturers Caterpillar and Nvidia that cited softening
Chinese demand.
    "Risk aversion in global financial markets (is) due to the
uncertainty related to the stability of economic growth,"
analysts at Banco Base said, adding that investors were waiting
to see the results of a top-level trade meeting between the
United States and China later this week. 
    Investors were also cautious ahead of a two-day meeting of
the U.S. Federal Open Market Committee, beginning on Tuesday,
that is expected to signal a pause in tightening and acknowledge
growing economic risks.
    Most regional currencies weakened against the dollar, which
was little changed ahead of the FOMC meeting. Falling oil prices
hurt currencies of net crude exporters such as Mexico and
Colombia, while Chile's peso tracked prices of the
country's main export - copper - lower. 
    Among stocks, Brazil shares led losses, down 2.3
percent as iron ore miner Vale's tumble wiped more
than $16 billion off its market capitalization.
    A burst tailings dam at the Corrego do Feijao mine sent a
torrent of sludge into Vale's offices and the town of Brumadinho
on Friday, killing at least 60 people and nearly 300 more
unaccounted for. Brazil's government is considering pushing for
a management overhaul at Vale, and prosecutors, politicians and
victims' families are calling for punishment.
    "The intangible aspect of this incident is what worries us
the most, and at the end of the day the entire mining industry
will need to rethink the current model," said analysts at
Brazilian investment banking firm BTG Pactual.
    The disaster occurred less than four years after a dam
collapse at a nearby mine run by Samarco Mineracao SA, Vale's
joint venture with BHP Group Ltd, killed 19 and dumped
toxic sludge in a major river. 
    "The reaction of the government and other public agents to
the accident has been much stronger than the Samarco episode
(given the magnitude of the human tragedy). This brings a lot of
uncertainty to the size of the financial punishment that will
hit Vale," said Igor Lima, a partner at Galt Capital.     
    Brazil markets were closed on Friday for a local holiday.  
    Shares of one of Vale's controlling shareholders, Bradespar
, also tumbled 25 percent. 
    Bourses in Mexico and Colombia also fell, while those
in Argentina and Chile turned around to close higher. 
    Key Latin American stock indexes and currencies at 2139 GMT:
    Stock indexes             Latest    Daily %
 MSCI Emerging Markets         1028.06     -0.41
 MSCI LatAm                    2833.88     -1.55
 Brazil Bovespa               95443.88     -2.29
 Mexico IPC                   43626.15     -0.03
 Chile IPSA                    5445.91      0.08
 Argentina MerVal             34840.80      0.09
 Colombia IGBC                11750.98     -0.18
       Currencies             Latest    Daily %
 Brazil real                    3.7614      0.06
 Mexico peso                   19.0260     -0.24
 Chile peso                     670.48     -0.50
 Colombia peso                    3156     -0.17
 Peru sol                        3.358     -0.45
 Argentina peso                37.1200     -0.11

 (Reporting by Susan Mathew in Bengaluru and Paula Arend Laier
in Sao Paulo
Editing by Sonya Hepinstall)
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