By Carla Mozee

Brazil's currency finished modestly lower Thursday, easing from an earlier gain when traders took their cues from a government plan outlining spending cuts in a bid to hold down inflationary pressures.

The currency ended at 1.777 reals per U.S. dollar, down from Wednesday's close at 1.773 reals. Trading was influenced in part by lingering concerns about debt problems in the euro zone.

The currency rose to 1.767 reals during the session as the Brazilian government said it will reduce public-sector spending by roughly 10 billion reals ($5.64 billion) in a move to rein in inflationary pressures, according to media reports Thursday.

Among exchange-traded funds, the iShares MSCI Brazil Index Fund (EWZ) reversed course to close with a 0.9% loss.

The Bovespa equity index fell 0.7% to 64,788.22, with declines accelerating as stocks on Wall Street tumbled late in the session. The S&P 500 Index (SPX) fell 1.2% to 1,157.44.

After a contraction of 0.2% in 2009, Brazil's economy has been quickly expanding. Market professionals have largely pegged growth coming in at more than 6% this year.

Alongside growth, inflation and inflation expectations have been on the rise. The annual inflation rate in April was 5.26%, surpassing Brazil's inflation target of 4.5%.

Finance Minister Guido Mantega said the government will work to limit economic growth to no more than 7% this year.

"Fiscal tightening is rarely seen in Brazil during an election year, but it goes to show just how strong the economy is right now," wrote Win Thin, senior currency strategist at Brown Brothers Harriman, in a note Thursday.

Brazil, which will hold its presidential election in October, said in March that it would freeze nearly 22 billion reals in spending.

Late last month, the nation's central bank embarked on a new rate-tightening cycle by raising the key Selic rate to 9.5%. The Selic had stood at a historic low of 8.75% since July 2009.

In a weekly survey conducted by the central bank, analysts lifted their economic growth estimate to 6.26% for 2010, up from 6.06% in the previous week. They also, on average, expected the benchmark IPCA inflation index to end at 5.5% this year.

Elsewhere in Latin America, Chile's IPSA index fell 0.5% to 3,872.48, with losses also deepening as Wall Street dropped. The moves in Santiago came ahead of the central bank's interest-rate decision due late Thursday. The iShares MSCI Chile Investable Market Index Fund (ECH) turned lower and ended at 0.1%.

Analysts polled by Dow Jones Newswires, on average, expect policy makers to hold the benchmark TPM rate at the record-low rate of 0.5%.

Chile continues to deal with the aftermath of a massive earthquake that hit Feb. 27. The government has estimated that the temblor created about $30 billion in damages.

The central bank said last week that a key index of economic activity dropped 2.8% in March from the year-ago period. Analysts polled by Dow Jones Newswires had expected a decrease of 2.5%.

In Mexico, the IPC index fell 0.1% to 32,342.43. Argentina's Merval lost 1% to 2,316.74.