By Daniel Horch

SAO PAULO (MNI) - Brazilian Finance Minister Guido Mantega Wednesday announced the government will start charging a 1.5% IOF financial transactions tax on American Depository Receipts, the shares of Brazilian companies that are listed on U.S. exchanges.

The measure will take effect Thursday, and "corrects distortion in the market, treating in the most similar manner possible the trading of depository receipts abroad that represent Brazilian shares, and the trading of shares by foreign investors in the stock market in Brazil," the Finance Ministry said in a statement.

Speaking to journalists in Brasilia, Mantega said "in this manner we will avoid a migration of operations from Brazil to abroad."

Last month, the Finance Ministry instituted a 2% IOF tax on foreign investments in the Brazilian stock and fixed-income markets, in an attempt to prevent further appreciation of the real.

That measure led to complaints that the new tax would chase business from the Sao Paulo stock exchange to international exchanges, as investors seek to avoid the tax.

Although there was widespread speculation the government would exempt IPOs in Brazil from the tax, to continue to attract new listings, the Finance Ministry has apparently chosen instead to extend the IOF tax to foreign listings.

The real closed trading Wednesday in Sao Paulo stable at 1.716 to the dollar, despite the weakness in the dollar seen internationally.

Currency traders seem to have been cautious, in light of official concern about the real's strength, and rumors about Mantega's announcement, which came after local markets closed.

Mantega Tuesday approvingly cited a recent report by Goldman Sachs suggesting 2.60 would be the "level of equilibrium" for the real/dollar exchange rate, and last week, said the real was 20% overvalued compared to the euro.

But at Wednesday's press conference he backed away from those comments, saying "it is difficult to establish what the level of equilibrium is" and that the government "does not have a target for the exchange rate."

Earlier Wednesday, data from the Central Bank showed policymakers bought $840 million last week, up from $507 million the week before.

In a research report released Wednesday morning, Miriam Tavares, director of currency trading at AGX Brokerage in Sao Paulo, said she expects the government to present a package of measures soon aimed at weakening the real.

If she is right, Wednesday evening's announcement is unlikely to be the last word from Mantega.

** Market News International **