Brazil's President Fernando Henrique Cardoso yesterday denied the government was planning emergency measures to prevent a further collapse in the real.

Brazil's currency fell 7 per cent yesterday in one of its biggest daily declines since the government had to scrap its controlled exchange rate on January 13th last.

Tension rose as the real fell beneath 50 cents to the dollar at mid-session, bringing its devaluation to almost 42 per cent since the currency began to float. The real's slide fed rumours that the government planned to decree over the weekend a temporary closure of banks and a restructuring of the 320 billion real (€140.75 billion) domestic debt.

However, share prices on the Sao Paulo stock market rose 7 per cent at mid-session as foreign investors returned to the market.

In one of his increasingly rare public appearances Mr Cardoso yesterday appealed for calm: "There will be no bank holiday. Whoever is spreading these rumours is a traitor. There is no reason for a run on the banks. The banks will remain open."

He said the government would not introduce price controls to prevent inflation, which economists say could reach 20 per cent this year.

Mr Cardoso said: "I have already defeated inflation of 3040 per cent per month. I would not hesitate to do whatever is necessary again. Nobody is thinking of controlling anything. Price controls are a thing of the past."

Earlier this week Mr Cardoso was also forced to deny that the government would impose capital controls. On Thursday, pro-government deputies denied that Mr Pedro Malan, the embattled finance minister, was resigning.

Mr Cardoso said yesterday he had an "encouraging" conversation with US President Bill Clinton but refused to say what they discussed.

He promised the government would forge ahead with efforts to reduce a budget deficit of more than 8 per cent of GDP, the main cause of the currency crisis. Mr Cardoso said: "Now it is the responsibility of the government to cut spending and pay its bills." A team from the International Monetary Fund is in Brazil to renegotiate terms of Brazil's $41.5 billion (€36.5 billion) rescue package, which the Fund helped put together last December to avert a collapse in the real.

However, foreign banks and rating agencies are warning of the rising risk of default on the government's domestic and foreign debts.

In February and March alone, the government must repay 70.79 billion reals in domestic debt and 3.74 billion reals in medium- and long-term foreign debt.