SAO PAULO -- The sinking value of the Brazilian real Friday shook Latin America's economy, already battered by the effects of the lengthy Argentine recession.

The Brazilian real slipped to a record low in trading against the U.S. dollar, pulled down by a negative moody's rating and investor fear that leftist candidate Luiz Inacio "Lula" da Silva may win the October presidential election.

The real closed down 2.4 percent against the U.S. dollar compared to Thursday's trading price, with each dollar selling for 2.84 reals -- the worst exchange rate since September 2001's historic low of 2.835 to the dollar.

Since January the real has dropped 16.2 percent of its value -- nine percent in June alone.

The instability resulted in Brazil's risk premium rising above 1,700 points -- one of the highest in the world, behind Argentina but ahead of Nigeria.

Traders and investors fear Lula will "renegotiate" payment on Brazil's 90-billion-dollar foreign debt -- often seen as a euphemism for defaulting.

"What happened Friday is called panic," said Favio Gaudino, an analyst with Sudameris Stockbrokers. "It was as if . . . Lula already had absolute advantage" in the polls." In Argentina, news that Central Bank president Mario Blejer will resign at the end of the month sent the Merval Stock index down 2.39 percent to 313.11 points, while the Argentine peso dropped 1.4 percent, closing at 3.63 to the dollar in bank transactions.

Blejer, a 21-year International Monetary Fund veteran who has been in place at the Central Bank since January, disagrees with policies carried out by Economy Minister Roberto Lavagna and will "hand in his resignation on June 30," according to the government source.

Blejer is likely to be replaced by his top assistant, Aldo Pignanelli, a Lavagna loyalist.

During Blejer's tenure the Central Bank's reserves dropped to less than 10 billion dollars.

Argentine Cabinet Chief Alfredo Atanasof raised the fear of regional contagion as a way to get the IMF to soften its strict requirements.

"We expect that the (Group of Seven industrialized nations) and the international lending organizations react on time and efficiently and help not only Argentina, but also the region," Atanasof warned.

For the past three months Argentina has been trying to get the IMF to restore credit lines closed due to Argentina's failure to meet payments.

Argentina "profoundly regrets" the crisis in other countries, Atanasof said -- an oblique reference to countries such as Uruguay, which was forced to float its currency Thursday, pressured by financial instability in neighboring Argentina and nearby Brazil.

The Uruguayan peso promptly dropped 16.8 percent against the dollar but remained stable in Friday trading.

Until Thursday the peso had traded within a 12-percent band against the dollar, with the band limits regularly altered by the Central Bank to allow a controlled devaluation of the currency.

Argentina is mired in a four-year recession.

Unemployment has hit a record 25 percent and 50 percent of the population is now living in poverty, according to government figures.

Credit has dried up since last year, when Argentina suspended payments on its 141-billion-dollar public debt.

As the real slipped, the Chilean peso dropped 1.3 percent against the U.S. dollar, a 3.8 percent drop in one week. Analysts directly link the Chilean currency's drop to the fall in the real's value.

In Paraguay, the local currency, the guarani, has lost more than 17 percent of its value against the dollar since January. The country's Industry and Commerce Federation, a major business group, warned of regional instability and asked for the government to request foreign assistence as a protection against contagion.

Further north, the Venezuelan bolivar has plunged a full 39 percent against the U.S. dollar since it was allowed to float freely in mid-February. Investors are also wary of populist Venezuelan President Hugo Chavez, ousted for two days in a coup April 11, and the widespread unrest he faces from business leaders and labor unions.

The bolivar reached a record low Thursday, trading at 1.316.9 per dollar, but improved slightly Friday to 1,309.9.

And in Mexico, the peso and the stock tumbled on the mere suggestion by Economy Minister Francisco Gil that his country faced "problems similiar to those of Argentina." Gil insisted that his statement Thursday had no effect on the market, but President Vicente Fox nevertheless said the Mexican economy "is solid." "We have no concerns of that type," AFP quoted Fox as saying. "There is in no way a situation like Argentina." Mexico's Bolsa Stock Market nevertheless closed down 1.18 percent, with a 77.84 point loss. The Mexican peso slipped slightly, closing at 9.15 pesos per dollar -- the lowest level in 18 months.