Brazil stocks tumble on US decline; real down

SAO PAULO, June 26 (Reuters) - Brazil's stock market tumbled on Thursday led by a decline in mining company Vale and local banks as investors sold off blue-chip shares on concerns over further losses at U.S. financial firms.

The Sao Paulo Stock Exchange's benchmark Bovespa index .BVSP slumped 3.09 percent to 63,820.9 points, erasing its 2.6 percent surge the previous session. Vale and Petrobras, the country's most heavily traded stocks, led the slump as aversion to emerging market securities grew.

The downturn came as U.S. stocks dropped to their lowest levels since September 2006 on worries about losses at big banks. The Dow Jones industrial average fell 2.1 percent and the Nasdaq Composite Index was down more than 2.5 percent, reducing the appetite for Brazilian securities.

"With so much bad news, the Bovespa is dancing according to the music that is playing in bourses abroad," said Carlos Alberto Ribeiro, director at the Novacao Distribuidora.

Thursday's losses sent the Bovespa into the red for this year, down 0.19 percent. It jumped 44 percent in 2007 and had traded nearly 16 percent higher for the year at the end May.

Yield spreads of Brazil's overseas bonds over comparable U.S. Treasuries as measured by JPMorgan's EMBI+ index widened, reflecting an increase in investors' risk aversion toward Brazilian assets. The index 11EMJ showed the country's bond spread widened by 7 points to 216.

Brazil's currency, the real BRBY, weakened 0.13 percent to 1.593 per U.S. dollar after a 0.8 percent jump the previous session that pushed the real to its strongest close since Jan. 20, 1999.

Interest rate futures <0#DIJ:> on the BM&F commodities and futures exchange in Sao Paulo rose, tracking the sell-off in the equities and currency markets.

State-controlled oil giant Petrobras (PETR4.SA: Quote, Profile, Research), the second heaviest stock in the Bovespa index, fell 1.05 percent to 44.48 reais, while Vale (VALE5.SA: Quote, Profile, Research) dropped 3.88 percent to 47.56 reais as investors dumped the two most liquid stocks in Brazil.