Brazil downgrade threat is a real danger sign

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When Standard & Poor’s said on Tuesday it was considering downgrading Brazil’s credit rating by one notch to junk, markets seemed to shrug off the news.

After initially touching a 12-year low, Brazil’s currency, the real, finished virtually flat at R$3.36 against the dollar while the Ibovespa benchmark stock index resumed a rally from earlier in the day, gaining 1.78 per cent to 49,601.60 points.

Investors should not take heart, however, from the apparent indifference of markets to the calamitous news that the hard-won investment grade rating of Latin America’s biggest economy was in jeopardy, analysts say.

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