NEW YORK AND RIO DE JANEIRO — The dollar is doing backflips, another key "emerging" market is flagging, and the stock market is acting like a trillion-dollar roller coaster. Only 4-1/2 months since Russia defaulted on its debt and about 18 months since the Asian economic crisis began, the latest turmoil rattling the global capital markets emanates from Brazil, which devalued its currency by about 9 percent Wednesday. Very quickly other Latin currencies fell against the dollar. If the new rates hold, it will be much harder for US exporters to peddle goods to Latin America, which absorbs 15 percent of the nation's exports. The markets appeared to rebound quickly from this currency shock. But the chain of events shows how sensitive capital markets remain. Within minutes of Brazil's action, economists were spinning scenarios about the possible impact on the global economy. The worst fear is that the Brazilian move will act as a worldwide catalyst. Since the Brazilian economy is so large in South America - and the world's eighth-largest - economists expect the effects of devaluation will have wide ripples. On Wednesday, for example, Argentina's currency fell by 10 percent, Chile's by 5 percent, and Mexico's by 4 percent. But, there is also talk that the Latin troubles might spill over to Asia, where an economic recovery is still budding. More Asian trouble might force China to devalue its own currency to stimulate exports. And, there could be still other ramifications, particularly for exchanges and international monetary policies. The uncertainty is reflected on Wall Street where the Dow Jones Industrial Average lost 125.12 points on Wednesday and by press time Thursday had dropped another 130. Other markets around the world have also pulled back, but showed signs of stability on Thursday. "This could be a catalyst to precipitate a correction," says Sung Won Sohn, chief economist at Wells Fargo & Co. Economists expect that the Federal Reserve, which meets again early next month to set interest-rate policy, will no doubt be watching the markets carefully in the days ahead. If the stock market continues to fall, there could be a change in consumer sentiment. "If the stock market corrects, that could cut back on consumer spending in a significant way," says Mr. Sohn. "Last year a significant portion of the growth in consumer spending was financed by the stock market." Not like Russia However, economists are quick to point out that the Brazilian problem is not analogous to the capital markets collapse last August, when the Dow Jones Industrial Average dropped 512.61 points after Russia defaulted on its debt. At that time, lenders pulled back from making loans, which ultimately spurred the Federal Reserve into an unplanned rate cut. That has not happened so far. One of the main reasons the markets have changed is that many of the speculators are no longer major players in the markets. After the Russian crisis, many of the highly speculative hedge funds reduced their operations or went out of business. Many of these groups had borrowed money to speculate. This is called using leverage. "The leverage is out of the markets," says John Burgess, managing director for Bankers Trust Company in New York. With the credit markets in better shape, economists don't expect the Federal Reserve will have to reduce interest rates again. Even if Brazilians cut back on their imports of US goods, the result will reduce US gross domestic product by only 0.2 percent. "The impact on the US economy is minor even if Latin America has a tough time," says Mickey Levy, chief economist for Bank of America, New York. What triggered Brazil's slide The latest firestorm started in the Brazilian state of Minas Gerais. The current governor of the state, Itamar Franco, a former president of Brazil, said he would delay for 90 days payments on his state's $15 billion in debt owed to Braslia. "We have absolutely no money," he said at the time. The debt moratorium shook investors, who began moving their money out of the country. As investors fled, the head of the central bank, Gustavo Franco, announced his resignation. "Investors saw Gustavo Franco as an anchor for Brazil's economic policies," says Alexandre Barros, a Braslia-based business consultant. The new central bank president, Francisco Lopes, the bank's former director of monetary policy, quickly opted for a devaluation of Brazil's currency, the real. "Lopes, on the other hand, signals a change in policy and uncertainty ... and uncertainty means more risk," he adds. Many businessmen and workers blame Mr. Franco's policies of an overvalued real and high interest rates for strangling economic growth and raising unemployment, expected to reach 12 percent this year. However, the government had few choices. Only two months ago, the United States and the International Monetary Fund agreed to a $41.5 billion aid package predicated on Brazil making tough reforms to cut its spending. A needed jolt? Several analysts believe this week's turmoil may at last jolt Brazil's fractious Congress into finally passing President Fernando Henrique Cardoso's fiscal reform package that aims to solve the federal government's budget deficit, now more than 8 percent of the nation's $800 billion gross domestic product. To date, Mr. Cardoso has had trouble winning congressional support for several crucial reforms, which Congressman Antonio Kandir argued must now be quickly approved in view of this week's events. Perhaps with that in mind, Congress, which is currently in special session to hammer out those reforms, passed several tax measures Wednesday that would save the government $6.5 billion. "The crisis may inject more determination in government congressional leaders, who have been incredulous lately that they can get the reforms back on track," says Braslia-based political commentator Franklin Martins. "But with a new central bank president promising lower interest rates, they may now be able to command their troops to victory." The financial turmoil came as a surprise to Cardoso. On Wednesday he cut short his vacation to return to Braslia where he tried to assure investors Brazil would meet its foreign debt obligations. "What we are doing is not a drastic change," he said. "It's just a technical modification."