Brazilian Real Declines on Concern the European Debt Contagion May Spread

Brazil’s real fell for a third week as European leaders’ vow to stave off a Greek default failed to reduce concern the debt crisis may spread.

The real declined for a third straight week, falling 0.4 percent to 1.6048 per dollar, from 1.5978 on June 17. The real plunged 0.9 percent today. The Brazilian market was closed yesterday for a national holiday.

European Union leaders vowed to stave off a Greek default as long as Prime Minister George Papandreou pushes through a package of budget cuts next week, pledging to do whatever it takes to stabilize the euro economy. Greece’s next hurdle is to shepherd 78 billion euros ($111 billion) of austerity measures through parliament, after yesterday’s endorsement of the program by experts from the European Commission, theEuropean Central Bank and the International Monetary Fund.

“The spreads on sovereign bonds of the peripheral countries -- Italy, Spain, Greece -- are rising sharply today,” Alfredo Barbutti, an economist at Liquidez DTVM Ltda in Sao Paulo, said in a telephone interview. “The market still sees risks.”

The euro fell versus most of its 16 most-traded counterparts amid speculation the Greek austerity plan won’t resolve its sovereign-debt crisis. The euro weakened 0.5 percent versus the dollar to $1.4188.

The yield on 10-year Spanish bonds rose five basis points to 5.68 percent. Yields on Italy’s 10-year benchmark bond rose four basis points to 4.98 percent.

Futures Contracts

Yields on interest-rate futures contracts maturing after September fell as investors bet the European debt crisis will hurt global growth, helping Brazil’s central bank to tame inflation, said Zeina Latif, Latin American strategist at RBS Securities Inc.

“This Greek issue is causing a lot of concern and you still can’t see the light at the end of the tunnel,” Latif said in a telephone interview from Sao Paulo. The drop in commodities yesterday and growth concerns in the U.S. are combining with the Greek debt crisis to lower interest-rate futures yields, she said.

The yield on the interest-rate futures contract due in January fell two basis point, or 0.02 percentage point, to 12.41 percent. The contract due in January 2013 fell five basis points to 12.51 percent.