SAO PAULO, Brazil -- Investors panicked again Wednesday across Latin America, prompting central banks to sell billions of dollars in reserves to prop up local currencies while stocks dove in a third straight day of extremely volatile trading.

Chile's IPSA led losses in trading, down 4.5 percent to 2,238, and Brazil's Ibovespa closed down 3.9 percent to 38,594 -- its lowest close since Oct. 9, 2006.

Colombia's IGPC closed down 3.2 percent to 8,410, while Argentina's Merval was off 1.8 percent to 1,359. Mexico's IPC index fell 1 percent to 20,679.

A drop in currency markets added to the initial plunge in the share values, which are reported in local currencies, prompting the central banks of Brazil and Mexico to auction off dollars.

Brazil's real sank to a new two-year intraday trading low of 2.5 per U.S. dollar but recovered and was in positive territory after its central bank sold $1.3 billion of its reserves in an auction that will eventually be returned to the government.

The bank also sold an undisclosed amount of dollar reserves in three additional auctions, and that money won't go back to Brazil.

It marked the first time since 2003 that the government has taken such a step with reserves President Luiz Inácio Lula da Silva last week characterized as ''sacred'' and essential as a part of the government's cushion of $200 billion to protect it from the financial crisis.

Mexico's peso, which had been trading at fewer than 11 to the dollar for much of the year, briefly hit 14 per dollar Wednesday morning, then recovered some value after Mexico's central bank said it was auctioning off $2.5 billion in reserves.

Chile's peso fell to its lowest level in four years, topping 600 pesos per dollar -- while Colombia's peso fell to 2,311 to the dollar, it's lowest against the U.S. currency since November 2006.

Stock markets across the region have been pummeled in recent weeks on deepening fears of a global slowdown that will crimp the region's robust growth. Traders predict volatility for months as investors see whether the global financial crisis devastates Latin America's commodities-based economies, reversing hard-won gains for the poor and middle class.

Brazil, with the region's largest economy, has been hit hardest because its equities were pumped up the most in recent years by foreign investment. Now foreign investors are dumping emerging market positions to reduce their risks.

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