By Carla Mozee

Latin America's biggest equity markets closed lower Thursday, with losses stemming from declines in energy prices and continued uneasiness about a key element that's missing from the U.S.' plan to stabilize the financial system.

Chilean stocks fell before the central bank announced a big cut in its key interest rate, to 4.75% from 7.25%. The cut of 250 basis points was significantly larger than market consensus for a cut of 100 basis points.

Mexico's IPC gave up 0.5% to end at 19,358.25, and Argentina's Merval fell 2% to 1,078.08.

Brazil's Bovespa, the index tracking the largest equity market in the region, fell 0.8% to 40,500.79.

"Huge volatility in U.S. stock markets combined with bad mood of economic agents that continue to fear the effectiveness of economic plans and bailout to financial system contributed to another weak session at Bovespa," wrote analysts at Agora Senior late Thursday.

Financial stocks were hit early on Wall Street as investors worried that the Obama administration hasn't outlined a way to put a price tag on toxic assets now sitting on the books of financial institutions. Latin American banks have limited exposure to such assets, but overall sentiment about the financial sector worldwide has nonetheless put pressure on their shares.

Among Latin American banking stocks, Unibanco shares (UBB) finished 2.1% lower in Brazil; Inbursa in Mexico fell 0.2%, and Grupo Financiero Galicia (GGAL) fell 2.7%.

In Santiago, Banco Santander Chile fell 1.2%, Banco de Chile (BCH) lost 0.8% while Banco de Crédito e Inversiones shares rose 0.2%. The share-price moves came ahead of the central bank's massive rate, which rate policymakers said is based on expectations that inflation will decline. The central bank cut its key interest rate by a full percentage point in January.

"Even with this cut, further easing is seen as the economy has hit a wall," said currency strategists at RBC Capital Markets in a note, which called the size of the latest rate cut "astounding". It also the move "will get market attention that things are really quite bad in Chile."

Chile's IPSA index fell 0.7% to 2,606.72.

In Sao Paulo, steel stocks slumped. Shares of Vale (RIO) fell 1.6%, Gerdau (GGB) lost 3%, and Companhia Siderurgica (SID) fell 3.2% to lead overall decliners.

Among electric utilities, Cemig (CIG) fell 1.7%, Eletrobras lost 2.6%, and Copel (ELP) shed 0.9%.

Petroleo Brasileiro's (PBR) preferred shares slipped 0.4% and its ordinary shares fell 0.4%, as crude oil prices fell for the fifth consecutive session. Crude prices dropped 5.5% to $33.98 a barrel on the New York Mercantile Exchange.

Also on Thursday, Citigroup downgraded Petrobras' ratings to hold from buy because of strong share-price performance.

"While we wouldn't buy the shares at current levels due to expensive valuation & negative [free cash flow] outlook, we wouldn't aggressively sell, as high share liquidity and [long-term] growth prospects should provide some support," wrote Citigroup analyst Tereza Mello in a research note on Thursday.

Separately, Petrobras said Thursday it has completed a $1.5 billion bond issue. The global notes are due March 15, 2019. Demand was 3.5 times higher than the final volume, said the company in a release. The notes were distributed to more than 230 investors, and Petrobras said the proceeds will be used in part to finance its strategic plan for 2009-2013.

Buenos Aires-listed shares of Petrobras Energia (PZE) fell 2.3% and Tenaris (TS) dropped 3.1%.

Mexican market heavyweight America Movil (AMX) shares fell 1.8% and Carso Global Telecom lost 3.2%.

But shares of Wal-Mart de Mexico (WMMVY) rose 2.8% to 30.08 pesos ($2.08) after the company's fourth-quarter results prompted a ratings upgrade at UBS, to neutral from sell.

Walmex on Wednesday posted net earnings of 4.92 billion pesos, up from 4.27 billion pesos a year ago. Analysts polled by Dow Jones Newswires had expected 4.8 billion pesos in profit. Revenue was 72.67 billion pesos, an increase of 8%.

UBS said "disappointment was avoided" in Walmex's results, and that the stock's more than 20% monthly drop "limits downside." UBS cut its price target by 10% to 31.50 pesos, but said the "shares now exhibit 9.7% total return potential."

On Wall Street, most equities staged a comeback from losses following a Reuters report that the U.S. government is considering extending aid to people who are behind on their mortgage payments.

The S&P 500 Index (SPX) rose 0.5%, and the Dow Jones Industrials (DJI) closed just 7 points, or 0.1%, lower after sliding as much as 246 points during the day.