"If China is really slamming the brakes, that's not good for Brazil," said Uri Landesman, who helps oversee about $3 billion at ING Investment Management in New York. "We'll need to see renewed appetite for risk or Brazil could fall another 8 percent short term."

Investors in Latin American stocks should reduce their holdings in Brazil to a "neutral" position relative to benchmark indexes because shares tied to consumer demand are "over-owned" and vulnerable to rising interest rates, JPMorgan Chase & Co. strategists wrote in a research note yesterday.

Brazil's central bank President Henrique Meirelles may act to stem price increases, according to a survey of economists published yesterday by the bank. Brazil's inflation will exceed the target of policy makers this year, while the benchmark lending rate will rise to 11.25 percent by year-end from a record low 8.75 percent, according to the survey.

Retail Sales Surge
Brazil implemented a 2 percent tax on the purchases of equity and fixed-income assets by overseas investors in October. The government's success curbing a rally in the nation's currency is a "scary" and "dangerous" precedent that may encourage officials to adopt more measures to stem the real's appreciation, according to Citigroup Inc.'s New York-based equity strategist Geoffrey Dennis.

Surging demand from Brazilian consumers is driving the country's economic growth along with commodity exports, said Federated Investors Inc.'s Audrey Kaplan. Brazil's retail sales jumped in November at the fastest pace since October 2008, climbing 8.7 percent from a year earlier.

"We do still find Brazil equities attractive," said Kaplan, who helps manage about $392 billion as the co-head of international equities at Federated in New York. "It's not only about higher commodities. Domestic consumption seems to be recovering much stronger than its peers."

Eoin Treacy's view The Brazilian authorities are some of the more vocal and indeed actual opponents of their currency's strength and succeeded in checking the Real's advance from October by implementing a tax on speculative inflows. The US Dollar broke upwards against the Real last week and would need to sustain a move below BRL1.75 to question scope for some additional upside.

The Bovespa Index tested 65,000 today which marked the most recent low and suggests that supply has retaken the impetus in at least the short term. A sustained move below 60,000 would suggest that a medium-term correction is unfolding.

Elsewhere in Latin America, the Dollar has also broken upwards against the Chilean Peso while the Chilean stock market has to date been relatively unaffected by global stock market anxiety. This could change if the Peso continues to weaken and/or the global stock market pullback proves lengthy.