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By Jamie McGeever
BRASILIA, Aug 14 (Reuters) - Brazilian financial markets slumped on Wednesday, with stocks posting their biggest fall since March and the currency at its weakest level since May as fears grew that a recession in the United States could be on the horizon.
The benchmark Bovespa index fell almost 3.0% and the real fell 2% to below 4.05 against the dollar, also feeling the heat from another turbulent trading session in neighboring Argentina.
The selling, largely triggered by the inversion of the U.S. yield curve, briefly pushed the Bovespa below the 100,000-point mark, while the real weakened past the 4.00-reais-per-dollar level.
The Bovespa ended down 2.9% at 100,258 points, the biggest one-day fall since March 27. The real has now lost around 9% in less than a month. At only the halfway point in August, the currency is on course for its biggest monthly fall since August last year.
“The deterioration of Brazilian assets has been essentially global as the local news flow remains positive,” said the head of markets at a major bank in Sao Paulo, adding that the real’s weakness was also hitting investor confidence.
“The perception of a global recession approaching and China being hit by the trade war is all playing against emerging markets, and Brazil is no exception. It has been a tough time to play a good local story amid severe global turbulence,” he said.
Yields on two-year U.S. Treasury notes rose above the 10-year yield for the first time since 2007, a metric widely viewed as a classic recession signal. This development has preceded every U.S. recession over the past 45 years.
All 66 constituents in the main Bovespa index were in the red on Wednesday. Shares in Kroton SA sank 11.6% after the education company reported weaker-than-expected results, while shares in Embraer fell 5.9% after the planemaker reported a second-quarter profit but reaffirmed it would post a loss this year.
Implied currency market volatility spiked to its highest level in two months BRL1MO=-, and interest rate futures rose across the board.
The market rout in Argentina continued on Wednesday despite welfare subsidies and lower taxes for workers unveiled by President Mauricio Macri, whose shock loss in presidential primary polls on Sunday triggered the volatility. (Reporting by Jamie McGeever; Editing by Lisa Shumaker and Leslie Adler)