RIO DE JANEIRO, Sept. 27 (UPI) -- With a leftist looking like the winner in the presidential elections now nine days away, Brazil's bonds sank to six-year lows and its currency hit another historic bottom Friday.
The local currency -- the real -- continued its steep slide, ending down 3.2 percent at 3.875 per dollar, its third such record drop this week. Local analysts say the real could break through the psychological barrier of 4 per dollar on Monday.
The real has lost 22 percent of its value against the dollar this month alone and more than 67 percent this year.
Brazil's benchmark 8 percent bond due in 2014 fell 3.21 cents to 48.31 percent, its lowest level since November 1995.
Driving these declines is the rise in the pre-election polls of Workers' Party candidate for President Luiz Inacio Lula da Silva, who investors fear will rise even further in opinion polls coming out this weekend.
Topping the list of concerns about Lula, as he is popularly known, are that his government would increase spending and push Latin America's largest economy into a default, which would be the largest the world has ever seen.
There are also worries that Lula will relax fiscal controls and push up inflation, as well as reverse privatization and slow the free-market reforms begun during the eight years of President Henrique Fernando Cardoso's time in office.
Also, investors are nervously awaiting the government's attempt to roll over its short-term debt next week. Reports in the local press indicate the central bank will try to cover 70 percent of $1.25 billion in debt due Tuesday, then pay out $150 million on Wednesday in dollar repurchase contracts coming due.
Weak bond and currency prices hit Brazil particularly hard, as some 80 percent of its $260 billion in net debt is linked to the dollar or floating interest rates on bonds, which have doubled in the last five months.
The leading stock index -- the Bovespa -- dropped hard Friday as well, shedding more than 5.25 percent to end at 8,716, its lowest level in three years. Not all of that was due to concerns about Lula: the drop on Wall Street played a role, too.
Lula's continuing dominance in the polls is beginning to win over political rivals. More than 100 officials from the ruling coalition -- who should ostensibly be backing Jose Serra, the government's hand-picked candidate who is now second in the polls -- endorsed Lula for president on Friday. In recent months, Lula has been winning over leading businessmen and garnered the approval of two former presidents.
Brazil's slide was felt in currency and stock markets around the region. In Peru, the local currency -- the sol -- fell to a record low of 3.649 per dollar. Mexico's IPC stock index slipped 2.62 percent to 5,801 while the peso lost 0.46 percent to end at 10.2 per dollar. Investors there blamed Brazil, as well as a down day in the United States, for the falls.
Argentina's peso fell 1.22 percent to end at 3.72 per dollar, while Chile's IPSA stock index fell 1 percent to 79.22.
