By Guillermo Parra-Bernal
SAO PAULO, Brazil, Feb 24 (Reuters) - Brazilian stocks fellfor a third day on Wednesday, while the country"s currencyfirmed, as new signs of a deep slump in the U.S. housing marketoffset optimism that U.S. borrowing costs, key to Brazil, wouldlong remain near zero.
Sales of newly built U.S. single-family homes unexpectedlyfell to a record low in January, suggesting potential troublefor a fragile recovery in the housing market in the world"slargest economy and prospects of a global economic rebound.
That countered Federal Reserve Chairman Ben Bernanke"srenewed pledge that he would be prepared to keep benchmark U.S.interest rates low for a long time to bolster the recovery.
Low U.S. rates have helped lure money into emerging marketcountries like Brazil, where returns are hefty and the level ofrisk greater. But fears of a fragile global rebound are leadinginvestors to reduce exposure to riskier assets in recent weeksto guard against any market relapse.
"Markets are walking on thin ice because we either growslowly and are hostage to low rates for a long time or weundergo a strong recovery and are hostage to inflation," saidDanny Rappaport, who manages 130 million reais ($71 million) inBrazilian stocks for Invesport in Sao Paulo.
The benchmark Bovespa stock index .BVSP reversed earlygains and shed 0.7 percent to 65,664.80, its lowest since Feb.10, after the homes data was released in the United States.Exchange operator BMFBovespa (BVMF3.SA), the world"s thirdlargest, led losses after reporting lower-than-expectedfourth-quarter earnings data late on Tuesday.
The currency gained 0.3 percent to 1.82 reais to thedollar, erasing half its 0.4 percent jump earlier in the day.
Investors in Brazil have become more U.S. data-dependent asdevelopments in equity markets there are seen as a gauge ofrisk-taking and global confidence.
Riskier emerging market assets have lost some of theirallure since Feb. 18, when the Fed raised its discount rate,which governs Fed emergency lending to banks, by 25 basispoints to 0.75 percent. Market participants interpreted themove as the preamble to a broader increase in borrowing coststhat could risk thwarting the U.S. economy"s nascent recovery.
Yields on Brazilian interest rate futures contracts<0#DIJ:> rose as investors in the fixed-income market were on a"wait-and-see approach" regarding Bernanke"s comments, said atrader who declined to be cited by name.
Yields represent investors" expectations for the benchmarkcentral bank overnight lending rate, known as the Selic, at thetime of each contract"s maturity.
BMFBOVESPA TUMBLES
Stock in BMFBovespa fell 3.4 percent after it reported an8.8 percent increase in net income, way below the 43 percentseen in a Reuters poll of seven analysts. The company also saidit will sell $310 million in bonds to invest in a partnershipwith Chicago-based CME Group. For more see [ID:nSPG002756].
"Markets were expecting a better performance," said AlvaroBandeira, chief economist at Rio de Janeiro-based brokerageAgora.
Commodity producers fell as oil CLc1 and other major rawmaterials fell in international markets, Bandeira added.
Preferred shares of Petrobras (PETR4.SA), Brazil"s stateoil company and the index"s most heavily traded stock, fell 0.7percent to 33.97 reais. The company reports fourth-quarterearnings on Friday.
Steelmakers fell, led by Usiminas (USIM5.SA). Shares of thelargest producer of flat steel in Brazil fell nearly 1.8percent to 47.50 reais.
Limiting the declines, preferred shares of Vale (VALE5.SA),the world"s largest iron ore producer and also a major miner ofcopper and zinc, rose 0.8 percent to 44.12 reais in Sao Paulo. (Additional reporting by Paula Laier and Silvio Cascione inSao Paulo; Editing by W Simon and James Dalgleish)
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