By Carla Mozee

Latin American equity markets dropped Thursday, pressured after China failed to outline plans to expand its economic stimulus package, a move anticipated by investors a day ago as they sent stocks soaring worldwide.

Brazil's Bovespa fell 2.7% to 37,368.93, losing the bulk of its 5.3% surge on Wednesday.

Mexico's IPC fell 2.6% to 17,365.02.

In Buenos Aires, the Merval index dropped 3.1% and Chile's IPSA logged a 2.2% decline.

Among exchange-traded funds, the iShares S&P Latin America 40 Index Fund (ILF) fell 3.6%, halving its gains from Wednesday.

The iShares MSCI Brazil Index Fund (EWZ) fell 2.6% but managed to retain a portion of its 7% advance from Wednesday.

A day ago, stocks around the world rallied after a former Chinese official said Premier Wen Jiabao was considering additional measures to spur economic growth. The country launched a $585 billion stimulus package in November.

But on Thursday, "there was no mention of a second and bigger stimulus plan," wrote analysts at Standard Chartered Group in a report. The premier formally announced China's 2009 growth target of 8%, signaling that there won't be a new round of spending projects.

Projects focused on infrastructure and housing, for example, could benefit some of Latin America's biggest providers of natural resources and related products, as China is the largest consumer for many industrial commodities.

Brazilian steel stocks, which were big winners in Wednesday's rally, were mired in losses Thursday. Shares of Companhia Vale do Rio Doce (RIO), whose key product is iron ore, fell 3.9%. Usiminas shares fell 6.2%, Gerdau (GGB) fell 6.3% and CSN (SID) gave up 6.3%.

Meanwhile, shares of Bovespa heavyweight Petroleo Brasileiro (PBR) fell 1.4%, tracking a decline in crude-oil prices. Investors also positioned themselves ahead of Petrobras' release of quarterly results on Friday, which are expected to decline as oil prices dropped during the fourth quarter.

Petrobras' results are among key figures set for release on Friday. Brazil's industrial production report for January is due, arriving ahead of the country's interest-rate policy meeting next week.

Itaú Securities on Thursday forecast seasonally adjusted growth of 9.4% from December, when manufacturing activity fell 12.4%. Growth in January will likely be led by automotive production, which rose 64.7% compared with the same month a year ago, it said.

"Manufacturing is a key element in GDP trends, and it's really not looking good so far this year, wrote Guilherme da Nóbrega, Itaú's chief economist, in a note Thursday. "The propagation into services, through the labor market, has only just begun. Global trends are not helping."

Itaú said it's revising its macro scenario, which will likely result in a "less cheerful forecast for 2009 GDP growth than our current 1.5%."

The U.S. Labor Department on Friday is expected to report the biggest decline in nonfarm payroll in nearly 60 years. Economists surveyed by MarketWatch expect February payrolls to fall by 650,000, and project the unemployment rate to rise to 8%, from 7.6%.

More evidence that U.S. economic conditions have worsened may bring pain to Mexico's markets on Friday, as the country's own economy is strongly linked with the U.S.

In Mexico City, shares of cement maker Cemex (CX) plunged 15% to 7.01 pesos, its lowest close since late November. The sharp decline prompted a brief trading halt during the session. The shares were hit on reported concerns that company may have to pay interest of 15% on bonds that it plans to issue.

Cemex is seeking to raise proceeds from U.S. dollar-dominated bonds to help refinance a portion of its debt. The company's total has swelled $19 billion because of its purchase of Rinker Ltd.

Meanwhile, Mexico's peso fell to 15.394 against the greenback on Thursday, after the country's central bank changed its policy for foreign-exchange intervention. Banxico will begin selling $100 million a day regardless of the exchange rate and said it will offer to sell $300 million at 2% below the rate from the previous session. It previously offered to sell $400 million.

The new strategy will begin Monday and stems from the central bank's efforts to defend the currency, which has been hit in recent months mainly on concerns about the country's economic health.

The change was a "slight tweak" in policy, said analysts at RBC Capital Markets in a note late Thursday. "We believe it will help only slightly in dampening some of the extreme volatility we have seen in USD/MXN, offering up some [dollar] liquidity in a market that has seen a noticeable decline in daily trading," they said.