Brazil Real Weakens On Moody's, Possible Delay In Greek Deal

The Brazilian real opened weaker on Thursday after global investors' mood soured on a warning from Moody's Investors Service that it may downgrade European bank credit ratings over the region's sovereign debt troubles.

The real opened at BRL1.7346 to the dollar, weaker than its previous close at BRL1.7220, according to Tullett Prebon via Factset.

Moody's late Wednesday said it was reviewing the ratings of more than 100 financial institutions around the globe due to the euro-zone crisis and other issues. The ratings company highlighted the weakening creditworthiness of the region's sovereigns, along with the long-term effect of the crisis on the operating environment for financial institutions.

Investor confidence had already been shaken in recent days on disagreements over a bailout package for troubled Greece. Recent reports that euro-zone officials are considering a delay to all or part of Greece's second bailout package worsened the mood. Officials have indicated they might want to wait until after the country's general election, which is expected to take place in April.

The bad news abroad offset signs of continued growth in Brazil. The Brazilian government's economic activity index, known as the IBC-Br, showed economic activity increasing, in seasonally adjusted terms, by 0.57% in December against November, the central bank said Thursday.

The reading "is in line with our scenario that the economic activity is already accelerating but in a gradual pace," Banco Santander economists wrote in a note.

Consumer prices in Brazil's biggest city also bolstered local investors. Consumer inflation in Sao Paulo slowed in the four weeks ended Feb. 15, as food prices dropped and others key categories showed signs of deceleration, the Fipe research foundation said Thursday.

Brazil's central bank has said that the benchmark interest rate, currently at 10.5%, could drop to a single digit as a global economic slump helps domestic inflation slow. Thursday data suggest that economic activity is benefiting from the rate cuts that started in August, while prices rise at moderate levels. That creates room for further rate cuts, which in turn lower demand for fixed-income investments that in the past had driven up the real versus the dollar.