By Carla Mozee, MarketWatch
LOS ANGELES (MarketWatch) Brazilian and Mexican stocks dropped Tuesday, starting off November in the red as investors feared that an unexpected move by Greece will unravel a painstakingly negotiated deal aimed at tackling Europe's crippling debt crisis.
Brazil's Ibovespa /quotes/zigman/1467794 BR:BVSP -1.81% benchmark fell 2.6% to 56,828 as Mexico's IPC /quotes/zigman/1475587 MX:IPC -1.37% sank 1.6% to 35,600 in broad-based losses, though each were off their worst levels of the session.
Argentina's Merval /quotes/zigman/1467195 AR:MERV -3.34% also fell, shedding 3.8% to 2,796. Chilean markets remained closed a second day for a holiday.
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Stocks on Wall Street and in Europe got hit hard after Prime Minister George Papandreou late Monday said Greece will hold a referendum on the deal the government struck with the European Union last week. Under its terms, private investors would write down by 50% their holdings of Greek bonds.
Papandreou also faced a parliamentary confidence vote this week.
The S&P 500 Index /quotes/zigman/3870025 SPX -2.26% fell 2.8% and the Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA -1.91% sloughed off nearly 300 points. Read more about Tuesday's selloff in U.S. stocks.
Among market heavyweights in Sao Paulo, iron-ore miner Vale SA /quotes/zigman/553117/quotes/nls/vale VALE -3.42% fell 2.7%. Petrobras /quotes/zigman/265276/quotes/nls/pbr PBR -3.48% /quotes/zigman/182970 BR:PETR4 -1.59% lost 2.8% as oil for December delivery /quotes/zigman/2084377 CL1Z -2.38% declined almost 3% in New York, amid concerns over separate reports indicating slowing conditions in the U.S. and Chinese manufacturing sectors in October.
Closer to home, data released by the IBGE statistics agency showed industrial production in Brazil dropped a seasonally adjusted 2% in September from August, with deceleration in 16 of the 27 industrial sectors that are tracked.
In Mexico City on Tuesday, shares of cement supplier Cemex /quotes/zigman/216063/quotes/nls/cx CX -6.64% /quotes/zigman/214984 MX:CEMEXCPO -4.80% slumped 5%. Copper miner Grupo Mexico /quotes/zigman/140394 MX:GMEXICOB -1.73% fell 2.5%.
But silver miner Industrias Penoles gained 4.5%, bucking the move lower among U.S. dollar-denominated metals futures that were hurt in part by a rise in the greenback against major rivals. See more about metals futures.
Alexander Stubb, Finland's minister of European affairs and foreign trade, reportedly said Tuesday that a referendum of the second Greek bailout package would essentially be a vote on Greece's membership in the euro zone, a view that Citigroup told clients it shared.
"If Greece were to decline the conditions of the second Greek bailout package, there would be no support from the troika," wrote Citigroup economist Jürgen Michels, referring to the European Union, the European Central Bank and the International Monetary Fund.
/quotes/zigman/1475587 IPC 35,662.84, -497.15, -1.37%
"In that case Greece is likely to run out of funding quickly and would probably move into a disorderly default procedure," he continued.
As Greek banks would run out of collateral, Michels said, they would also lose the funding of the European Central Bank. "As a consequence, Greece would probably be forced to leave the Monetary Union."
Brazilian and Mexican equities have been hit this year as part of widespread worries that Europe's debt crisis will dent global growth prospects. The Ibovespa has lost 18% so far this year and the IPC has fallen 7.6%.
The declines, however, were reduced by respective gains of 11.5% and 7.9% in October.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles.
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