Brazil's Ibovespa index rose 4.3 percent to 40,262 in the morning, only to reverse course and close down 4.1 percent at 37,004, erasing the gains of the last two years.

For the second day in a row, Brazil's central bank sold dollars in a bid to stabilize the real against the U.S. dollar. The bank auctioned off US$911 million that will eventually be returned to the government, then sold an undisclosed amount that will not return.

Brazil also said it would free up about US$10 billion in credit by easing limits on bank reserves. Together, the moves strengthened Brazil's currency to 2.2 per dollar in intraday trading, up from 2.3 a day earlier.

Argentina's Merval index led regional losses, plummeting 5 percent to 1,287 after opening sharply higher. Colombia's IGBC sagged 2.3 percent to 8,216, and Chile's IPSA fell 0.5 percent to 2,227.

Mexico's IPC was down 0.6 percent at 20,564 points a day after President Felipe Calderon unveiled plans for 53 billion pesos ($4.4 billion) in emergency infrastructure spending to inject funds into the economy. And the Bank of Mexico put annual inflation at 5.5 percent, down from 5.6 percent last month, due to signs that food prices are leveling off.

A Central Bank auction of some US$2.5 billion in reserves helped the peso recover after briefly touching 14 to the dollar on Wednesday. The peso was trading at 12.4 to the greenback on Thursday.

New York-based analyst Enrique Alvarez credited Thursday's early gains to "bounceback" from days of steep declines and government interventions in Brazil, Mexico and Colombia.

But he said Latin America remains "very susceptible to the panic level" from fears that a global recession will reduce demand for regional commodities including metals, oil and agricultural goods.

No country has been immune. Paraguay, one of the region's economic lightweights, saw its currency, the Guarani, fall 5.3 percent against the dollar Thursday despite a government move to sell US$30 million in reserves.