Financial instability in Brazil will continue to disrupt global financial markets unless it quickly implements credible economic and budgetary reforms, according to Chase Manhattan Corp.

U.S. banks and U.S. corporations have become increasingly dependent on the Brazilian market, Chase said, and a recession there could put a dent in overseas earnings at banks such as BankBoston Corp. and Citibank.

However, Chase noted in a recent economic survey that "a combination of more credible Brazilian fiscal restraint and currency adjustment in inflation adjusted terms could limit the depth of the Brazilian recession." The bank also predicted that financial uncertainty in Brazil will have only a "muted" impact on economic growth in other parts of the world, though there is still a risk that financial instability could spread to other Latin countries.

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