EMERGING MARKETS-Brazil stocks drop as U.S. government nears shutdown

Reuters

* U.S. lawmakers face midnight deadline for funding bill

* Brazil Bovespa falls 1.67 pct, Mexico IPC down 0.83 pct

SAO PAULO, Sept 30 (Reuters) - Brazilian stocks dropped for

the fifth straight day on Monday, weighed down by concerns a

possible shut down of the U.S. government could hurt markets.

Mexico's IPC index headed for its lowest close in

three weeks, while Chile's bourse retreated for the

fifth straight day.

U.S. lawmakers continued to wrangle on Monday about a

funding bill for the federal government. A lack of an agreement

by the end of the day would likely cause the government to

shutdown at least briefly.

A prolonged shutdown could have a major impact on the

economy and consumer confidence. As many as 1 million U.S.

federal employees could face unpaid furloughs.

The concerns drove investors away from riskier assets such

as Latin American equities, with Brazil's benchmark Bovespa

stock index falling 1.67 percent to 52,839.15, its

lowest in over three weeks.

"The political crisis in the U.S. is adding to uncertainty

and a negative trend for the market, which is unlikely to

recover today," said Leandro Silvestrini, an analyst with

Intrader in Sao Paulo.

The most widely traded blue-chip shares drove losses in the

index, with mining firm Vale SA dropping 1.28 percent

and Itaú Unibanco Holding SA, Brazil's largest

non-government bank, down 1.89 percent.

Local stocks with high liquidity tend to attract foreign

investors looking for exposure to Latin American equities, with

their performance often tracking global risk appetite.

Shares of OGX Petroleo e Gas Participacoes SA,

the oil company controlled by Brazilian tycoon Eike Batista,

fell 14 percent to 0.24 reais, its lowest price ever.

The company, which is widely expected to file for bankruptcy

protection within the next few weeks, is considering selling its

Tubarão Martelo oil field to Malaysia's Petronas, a local

newspaper reported on Monday.

Shipbuilder OSX Brasil SA, OGX's sister company

in Batistas's EBX Group holding firm, dropped 13 percent. The

company is also widely expected to file for bankruptcy

protection in coming weeks.

Mexico's IPC index fell for the third straight day,

losing 0.83 percent to 40,562.73.

Shares of mining firm Grupo Mexico slipped 1.6

percent, contributing most to the index's losses, while shares

of telecommunications firm America Movil dropped 0.45

percent.

Chile's IPSA index fell 0.96 percent as shares of

conglomerate Copec fell 1 percent.

Latin America's key stock indexes at 1626 GMT:

Stock indexes daily % YTD %

Latest change change

MSCI LatAm 3,327.44 -0.3 -12.12

Brazil Bovespa 52,839.15 -1.67 -13.31

Mexico IPC 40,562.73 -0.83 -7.19

Chile IPSA 3,835.91 -0.96 -10.82

Chile IGPA 18,885.82 -0.75 -10.37

Argentina MerVal 4,640.70 -1.89 62.59

Colombia IGBC 14,113.71 -0.02 -4.09

Peru IGRA 15,919.88 -0.16 -22.83

Venezuela IBC 1,794,287.

-0.31 280.60

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