* Brazil to charge 1.5 pct tax on ADR investments
* Economists doubt measure will staunch capital inflows
* Mantega says gov't not targeting specific exchange rate (Adds details, quotes, comments throughout)
By Ana Nicolaci da Costa
BRASILIA, Nov 18 (Reuters) - Brazil took another step on Wednesday aimed at containing the appreciation of its currency, unveiling a 1.5 percent tax on certain trades involving American Depositary Receipts issued by Brazilian companies.
The tax will be charged when foreign investors convert ADRs for Brazilian companies into receipts for shares issued locally. It aims at closing a loophole that was allowing investment to keep flowing into local stocks tax-free.
Finance Minister Guido Mantega said foreign investors have been buying Brazilian ADRs and converting them into receipts for locally issued shares to gain exposure to Brazil's red-hot stock market. In doing so, they avoided paying a 2 percent tax on capital inflows, known as the IOF, initiated in October.
"When we implemented the IOF, there was concern at the Brazilian stock exchange that we would be transferring some investments to New York," Mantega said at a hastily called news conference in the capital. "We are equalizing the situation."
Nelson Barbosa, the finance ministry's secretary of economic policy, told reporters after the announcement that no additional measures are in the works.
The new tax, which will take effect on Thursday, will complement the IOF levy, Mantega said.
The IOF tax began on Oct. 20 as the government started
taxing foreign investment flows to local stocks and
fixed-income securities in a bid to put the brakes on the
Brazilian real
That tax initially helped the real to weaken slightly, but the currency has since recovered its footing as foreign investors continue to pour money into Brazil's financial markets in search of high returns.
IMPACT SEEN LIMITED
The 1.5 percent ADR tax announced on Wednesday was less drastic than what some analysts and market participants were expecting.
The market had been rife with speculation in recent weeks that the government would take harsh action to curb what several officials have called "speculative" inflows.
Yet many economists said they doubted the new tax on ADRs would do much to staunch the flow of capital into Brazil, whose main stock index <.BVSP> has soared about 77 percent this year. [ID:nN18616101]
"We just don't think it's going to have a long-term effect," said Kathryn Rooney, a senior emerging markets strategist with Bulltick Capital Markets in Miami.
"It's something they've tried in the past. And I think it's just basically responding to the hot money flows into the equity market."
Mantega acknowledged that the government is concerned about the impact of the strong real on Brazil's economy. But he stressed that the government is not targeting a specific exchange rate.
"There is no target for the Brazilian currency, it's a floating exchange rate," he said.
How to deal with the strong real is shaping up as a hot-button political issue as Brazil prepares for a presidential election next year to choose a successor to President Luiz Inacio Lula da Silva.
Lula has come under heavy pressure this year from exporters to take action to prevent the real from strengthening further, a trend that is making Brazilian goods less competitive on world markets.
(Additional reporting by Daniela Machado and Luciana Lopez in Sao Paulo, Writing by Todd Benson; Editing by Dan Grebler)