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By Marcela Ayres
BRASILIA, March 25 (Reuters) - Brazilian Economy Minister Paulo Guedes on Monday said the government's landmark pension reform may be diluted, but urged lawmakers not to water down targeted savings in the next decade to less than 1 trillion reais ($259 billion).
Brazilian markets have slumped in recent days on growing concerns that political fragmentation in Brasilia will delay and dilute the reform that most economists see as critical to restoring public finances and kickstarting the economy.
Guedes recognized that the negotiating process is having "natural" teething problems and that political arm-wrestling will likely result in a final bill that differs from the government's original draft.
"But there's no chaos," he said at an event in Brasilia.
President Jair Bolsonaro and Rodrigo Maia, head of the lower house of Congress and chief architect of the coalition to pass pension reform, have traded barbs publicly over the process.
Guedes said on Monday there must be no horse-trading for votes, as Bolsonaro has insisted. Over the weekend, Maia called the president remote and intransigent, suggesting he lacks the commitment to see the reform through Congress.
Investors have not been impressed by the finger pointing.
The Bovespa stock index shed 5.5 percent last week, its biggest weekly loss since August. On Friday, the 10-year bond yield jumped more than 35 basis points, its biggest rise since August, while earlier on Monday the real hit its lowest level this year, beyond 3.93 per dollar.
Bolsonaro and Guedes have both said they expect lower house approval of pension reform before the end of June, but investors and analysts are more skeptical.
Surveys show most market players see a bill passing in the third quarter, with overall savings of around 700 billion reais.
($1 = 3.8650 reais) (Reporting by Marcela Ayres; Writing by Jamie McGeever Editing by Jeffrey Benkoe and Susan Thomas)