The devaluation of Brazil's currency, Latin America's latest saga, is also weakening its stock market and taking down shares of Brazilian companies that trade in the U.S.

On Tuesday, Brazil's real was trading at 3.26 per U.S. dollar, its worst level in eight years. At the same time, Brazilian stocks


( TBH),

Petroleo Brasileiro

(PBR) - Get Report



( UBB),

Compania Energetica de Minas Gerais

(CIG) - Get Report


Tele Centro Oeste Cellular

( TRO) and

Telesp Celular

(TCP) - Get Report

each touched fresh 52-week lows.

The currency drop comes amid a number of political and economic uncertainties in the country. "It is a bleak picture," said Clyde Wardle, an emerging-markets currency strategist at HSBC.

Ahead of elections in October, markets are nervous about instability resulting from an opposition win. Recent polls have shown the left-wing candidate, Luiz Inacio Lula da Silva, and center-leftist, Ciro Gomes, ahead of President Fernando Henrique Cardoso's market-friendly candidate, Jose Serra.

Meantime, Brazilians are hoping for an IMF loan to prevent further currency destabilization. Brazil sent two officials to Washington on Tuesday to negotiate a package before the elections. Comments over the weekend from Treasury Secretary Paul O'Neill quashed some optimism for a deal.

O'Neill said on Sunday that the U.S. had no plans for new aid to Brazil, and he expressed concern about assistance ending up in Swiss bank accounts. His statements led to the real's plunge this week. But on Tuesday the Bush administration came to the defense of Brazil, saying it would support international aid.

"Brazil is an important friend and ally, and this president and this administration has great confidence in Brazil and its economic team," said White House spokesman Ari Fleischer on Tuesday.

An aid package is key in determining whether Brazilian companies will be able to meet loan obligations. "The credit conditions on shore in Brazil are incredibly tight right now," said Wardle. "People are scrambling for whatever liquidity they can get to repay debts. That is hurting the stock market."

Dollar rates are above Brazil rates, meaning companies have been buying dollars to pay off debt. The Brazilian government also has been selling foreign reserves and dollar futures to add to supply.

"The demand for physical dollars has been driving the local currency lower," said Gustavo Rangel, an emerging-markets strategist at Barclays Capital, "because people want to get rid of it."

Unless the currency situation improves, there could be a lot of bankruptcies in Brazil, experts say.

"If the real stays where it is for a long time, companies that have unhedged dollar debt will be at risk of going bankrupt," said Ricardo Amorim, head of Latin American research at IDEAGlobal.