Brazil Forex Trade Market:

Brazil Forex Trade Breaks Record As Investors Dump The BRL:

SAO PAULO (Dow Jones)--Brazil's BM&F Bovespa securities exchange registered a record breaking volume of $520 million in trade Tuesday as investors sold out of local real-backed assets following the introduction of a new tax.

The government announced that it would charge a 2% tax on foreign purchases of fixed income and equity, resulting in a knee-jerk reaction that sent the stock market 4% lower at one point during the day and the real from BRL1.70 to BRL1.749 to the U.S. dollar at the close.

The last volume record in the dollar spot market was set on April 4, 2009 and was $420.7 million.

Finance Minister Guido Mantega said the tax move was designed to curb further real appreciation against the dollar, and avoid a bubble in equity prices. The real has appreciated by roughly 30% and the Ibovespa stock market is up over 70% year to date.

Foreign investors have been piling into Brazil, recently acquiring 73% of one of the country's latest share offerings, that of home builder PDG Realty (PDGR3.BR).

Although Bovespa officials said that there might be loopholes to allow for the tax to be reduced, international fund managers were unhappy with the decision, resulting in a sell-off of the Brazilian real and record volume

Capital controls like this have not been a maneuver that's been very successful," said Geoffrey Pazzanese, portfolio manager at Federated Investors and co-manager of the Federated InterContinental Fund.

"I would expect them to reverse course on this one, or at least give the market more definitive answers on how this will affect other market transactions," Pazzanese said.