The real fell 5.3% to 3.18 against the US dollar, taking its falls so far this year to 28%.

The drop was sparked by fears over the upcoming meetings with the International Monetary Fund (IMF) in Washington.

Brazil has warned that it may have to ask for fresh assistance from the Fund if the financial turmoil in the country persists.

Sceptical dealers

"The IMF welcomes the decision of the Brazilian authorities to send a [negotiating] team to Washington, and we look forward to productive discussions," the Fund said.

But traders were pessimistic about the likely outcome of the talks between the indebted country and the Fund.

US Treasury Secretary Paul O'Neill further undermined sentiment by commenting that aid to Latin American countries has a tendency to end up in Swiss bank accounts.

President Cardoso has called for a retraction of disparaging comments from Mr O'Neill, who is due to visit the country next week.

Debt worries

The real's weakness has triggered fresh concerns over Brazil's $250bn debt burden.

A decline in the value of the real increases the cost of servicing its dollar-denominated debts.

A weaker real also makes imported goods more expensive and fuels inflationary pressures.

Left-wing candidate Luiz Inacio Lula da Silva is gaining in popularity ahead of general elections in October.

Financial markets are worried that Lula may adopt populist policies which would pile further pressure on Brazil's shaky finances.

Neighbouring Argentina's economic crisis has also had a knock-on effect on Brazil's economy.