Brazil stocks, currency slump on risk aversion

(Updates to close)

SAO PAULO, Jan 21 (Reuters) - Brazilian stocks slumped to their worst day in more than two months on Thursday as investors were spooked by the possibility of tighter Chinese monetary policy and tougher rules for banks in the United States.

Brazil's benchmark Bovespa index <.BVSP> plunged 2.83 percent to end the day at 66,270.13, its lowest close in 2010 and its second straight day of losses. The fall was the steepest since Nov. 12.

The slide came as stocks linked to commodities, including energy giant Petrobras, mining company Vale and steelmakers gave ground on worries that tighter Chinese monetary policy could cut demand for raw materials.

Data on Thursday showed China's annual gross domestic product surged 10.7 percent in the fourth quarter.

Chinese inflation figures showed consumer prices rose 1.9 percent in the year to December, a marked acceleration from November's reading of 0.6 percent. [ID:nTOE60K011]

The figures reinforced expectations that it was only a matter of time before Beijing took more policy steps to prevent an overheated economy, which would reduce the appeal of riskier emerging market securities.

"The momentum in Chinese inflation risks is adding to the wave of risk aversion experienced over the last couple of days," BNP Paribas analysts said in report.

In the United States, a proposal from President Barack Obama to limit risk taking among banks pressured stocks lower and stoked risk aversion, as well. [ID:nN21115923]

Brazil's currency, the real , weakened 0.45 percent to 1.801 per dollar, its first close past the 1.8-per-dollar mark since Sept. 24.

"Any suggestion that the engine of the global economy could slow down will be bad for the growth-sensitive and commodity-linked currencies," said Vassili Serebriakov, a senior currency strategist at Wells Fargo in New York.

On the stock exchange, state-controlled Petrobras shed 3.16 percent to 34.33 reais. Crude oil dropped 2.14 percent as U.S. government data showed an unexpected large build in gasoline stocks last week. [ID:nN21227695]

Vale , the world's largest producer of iron ore, sank 3.56 percent to 44.76 reais. China is a major market for the company.

Fellow mining company MMX Mineracao moved down 4.26 percent to 14.15 reais.

Brazilian steelmakers declined on concerns slower growth in China will pressure steel prices. Gerdau lost 4.35 percent to 26.40 reais, CSN closed down 4.41 percent to 54.68 reais and Usiminas tumbled 4.91 percent to 46.30 reais.

Yields on Brazilian interest rate futures contracts <0#DIJ:> edged higher after data showed capacity utilization at factories reached its highest level since October 2008. The central bank has said it will closely monitor indicators of slack in the economy for signs that a fast recovery may stoke inflation.

The yield on the contract due January 2011 firmed to 10.37 percent from 10.33 percent. The yield on the contract due January 2012 rose to to 11.8 percent from 11.74 percent. (Reporting by Elzio Barreto and Luciana Lopez; Additional reporting by Michael O'Boyle in New York; Editing by Dan Grebler)