PBE Peabody Energy

By Carla Mozee

Latin American stocks tumbled Monday, hit as part of a worldwide slide in equities, as investors braced for the possibility that U.S. banks will need more capital support and that automakers General Motors Corp. and Chrysler LLC are moving closer to bankruptcy.

Investors in Brazil were also grappling with a sharp cut by the central bank of its 2009 economic growth forecast.

Brazil's Bovespa fell 3% to 40,653.13, with shares of market heavyweight and oil giant Petroleo Brasileiro (PBR) down 2.8% as crude-oil prices dropped nearly 8% to below $49 a barrel on worries about the future of the U.S. auto industry.

Investors were concerned about lower demand for oil as it appeared unlikely that leaders from the world's largest industrialized and developing economies will agree to another round of global economic stimulus. The Group of 20 nations is set to meet in London on Thursday.

Mexico's IPC fell 3.9% to 19,530.15, with 31 of the 32 companies listed on the benchmark ending with losses.

In Argentina, market heavyweight Tenaris (TS), which makes steel tubes used by the oil industry, saw its shares fall 4.7%, helping to pull the Merval index down 3.4% to 1,103.39. Buenos Aires-listed shares of Petrobras slumped 4.6% and stock in Petrobras Energia (PZE) fell 3.1%.

In Santiago, the IPSA fell 2.1% to 2,494.07. There, shares of construction and materials firm Masisa fell 6%.

Sell-offs in Asian and European markets set the grim tone for Wall Street, where the S&P 500 Index (SPX) fell 3.5% and the Dow Jones Industrial Average (DJI) lost 254 points, or 3.3%.

"The Obama administration wants an overhaul of the recovery plans at GM (GM) and Chrysler -- or their best chance might be a bankruptcy," said analysts at Saxo Bank in a note Monday.

"It more and more looks like one or both of the companies will be shut down," as GM Chief Executive Rick Wagoner was "shown the door" and Chrysler was told it had 30 days to complete a partnership with Fiat before it could receive more federal funding, said Saxo.

On Monday afternoon, privately held Chrysler said it reached a framework for a global alliance with Italy's Fiat (FIATY).

Wall Street and Latin American markets were also rocked by a slide in financial stocks after U.S. Treasury Secretary Timothy Geithner said in interviews during the weekend that the banking industry may need more capital support and warned of continuing losses. The Financial Select SPDR Fund (XLF), a gauge of large-cap financial stocks, fell 8.6%.

Brazil lower growth view; Banorte shares rated 'sell'

The global financial crisis is continuing to wear on conditions in Brazil, Latin America's biggest economy, prompting the central bank on Monday to cut its forecast for gross domestic product.

It now expects growth of 1.2% in 2009, down from its previous outlook for growth of 3.2%. The bank also cut its 2010 inflation forecast to 4% from 4.2%. In 2008, economic activity registered expansion of 5.1%.

It also lowered its 2009 forecast for inflation, expecting it to slow to 4%. It previously expected inflation of 4.7%. The government's target for inflation is 4.5%, with the upper end of its tolerance band at 6.5%.

The central bank's outlook was based on its expectation for an annual Selic rate of 11.25% and for the currency to be exchanged at 2.35 reals per U.S. dollar.

"As the output gap continues to widen on a weakening demand, and as the inflation outlook confirms a lack of worries, one can't help seeing a wide avenue for further interest-rate easing," wrote Guilherme da Nóbrega, chief economist at Itau Securities.

"We project another cut of at least 100 [basis points] for April 29, and Selic rate at 8.75% by year end."

Most banking stocks fell, with Bradesco (BBD) off 3.1%, Itau (ITU) lower by 2.9%, and Unibanco (UBB) down 3.2%.

Meanwhile in Mexico, the worst performer of the session was Grupo Financiero Banorte . Its shares tumbled 14% after Citigroup downgraded the banking concern to sell from buy. It was the steepest percentage loss since Nov. 20.

Banorte's shares have risen about 15% in less than two months, and the broker said their outperformance of the IPC index is "unjustified" considering the deterioration of the company's micro and Mexico's macro fundamentals.

In addition to continued weakness in exports, the broker's economists "point to surprising negative indicators of domestic activity, something that certainly does not bode well for a financial institution, particularly with respect to the outlook for loan growth and, more importantly, asset quality," wrote analyst Daniel Abut in a note to clients.

Also, shares of cement maker Cemex (CX), which has been dealing with debt-refinancing efforts, fell 6.4%.

Only shares of steel company Industrias CH finished unchanged on the IPC, finishing at 29.03 pesos ($2.03).

Despite Monday's slide, the benchmarks are still on track to post monthly gains. The Bovespa is up 6.5%, the IPC and the Merval are up 10%. But the IPSA is up just 1%.