By Carla Mozee

Latin American equities dropped Monday as more forecasts for economic contraction rolled out and as Wall Street slumped in the wake of a warning about large losses in the banking sector.

In Mexico, the IPC index fell 0.9% to 20,753.09, resuming trade after a halt. The halt was prompted by a technical glitch involving phone lines, according to a Dow Jones Newswires report.

Brazil's Bovespa led regional decliners with a loss of 1.5% at 43,730, with shares of steel maker Gerdau falling 2.9% after the broker cut its rating on Gerdau's U.S.-listed shares (GGB) to sell.

Stock in oil giant Petrobras (PBR) fell 1% as crude-oil prices slid nearly 5% to $50 a barrel on the New York Mercantile Exchange. Prices for copper, silver and other metals also slumped.

Questions about future demand for resources in the U.S. and worldwide emerged with a flare-up in worries about the health of the U.S. financial sector after an influential analyst said on Monday that loan losses in the sector are likely to grow more severe than they did during the Great Depression.

Mike Mayo, a former analyst at Deutsche Bank and now at Caylon Securities, initiated coverage on U.S. banks with an underweight sector rating.

The S&P 500 Index (SPX) fell 1.6% and the Dow Jones Industrial Average (DJI) fell 100 points, or 1.3%.

The dreary financial-sector forecast came as investors in Brazilian markets received results from a weekly Brazilian central bank survey of economists that show they now expect gross domestic product to fall 0.19% in 2009. The consensus estimate last week was for 0% growth. Latin America's largest economy expanded 5.1% in 2008.

At the same time, Merrill Lynch cut its forecast for Mexican GDP growth in 2009 and sees a decline of 3.2% year-over-year as it expects a sharp deterioration in the outlook for activity in the first quarter.

"This follows from more risks stemming from the US recession (eg, auto industry woes) but especially from an earlier and more forceful spill-over from Mexican manufacturing to services," wrote chief Latin American economist Felipe Illanes.

Steel stocks in Brazil took some of the sharpest losses Monday after Deutsche Bank lowered its forecasts for benchmark hot rolled coil, or HRC, prices in the U.S. and Europe for this year and in 2010. It expects an average HRC price of $515 a tonne in 2009, representing a 46% decline year-over year.

The broker also expects global steel consumption will contract 17% this year, compared with its prior estimate of a 7% decline.

"Investor sentiment has changed in recent days to broad optimism that demand has bottomed, and we accept that steel stocks outperform in the early stages of a recovery," wrote Deutsche Bank research analysts David Martin and Jorge Beristain.

"However, we aren't yet prepared to accept this as a sustainable rebound as we haven't observed any meaningful improvement in 'leading' indicators in steel and steel price pressure hasn't abated."

In addition to cutting Gerdau's rating, Deutsche Bank assigned a sell rating on shares of Ternium SA (TX), saying that "healthy balance sheets are critical" and that the companies, along with ArcelorMittal (MT), "pose the greatest risk in the sector."

Stock in Companhia Vale do Rio Doce (RIO), the world's largest provider of steel component iron ore, fell 2.5%.

Chile's IPSA shed 0.6% to 2,535.76 and Argentina's Merval fell 1.7% to 1,150.97 as shares of steel tube maker Tenaris (TS) gave up 2.1%.