The MST is stepping up land occupations

The government, led by President Luis Inacio Lula da Silva since his stunning election victory last year, has confounded doomsayers who predicted his leftwing Workers Party would send investors running for the exits.

Instead, the real - Brazil's currency - is up 22% on the year, while the Bovespa stock market has also shot upwards.

But recent strikes opposing a badly-needed shakeup of the massive public pension system, and growing disputes with the Landless Workers' Movement (Movimento dos Trabalhadores Rurais Sem Terra, or MST) sent both currency and markets down on Monday.

The falls came as an International Monetary Fund mission visited the capital Brasilia, to discuss whether Brazil wants - or needs - to keep drawing on a $30bn loan negotiated by the previous government last September and intended to stabilise the economy.

Honeymoon

The troubles are the first real sign of a bump in the road for President da Silva.

Thus far the economic picture has presented a sharp turnaround from the run on the real and the dive on the stock market that preceded his election.

The promise to the IMF of a 4.25% budget surplus before interest payments on Brazil's $250bn debt has been easily met, and interest rates are on the way down - albeit from sky-high levels approaching 30% - in the hope of reinvigorating investment and avoiding recession.

Brazil's markets have been pleasantly surprised by Lula

But now things are looking slightly stickier.

A powerful coalition of officials and judges is looking to block the pension reforms, aimed at chopping back on a system that gives senior public servants massive pensions even if they continue to work while private sector employees get a pittance.

Land reform

Meanwhile, the organisations representing landless and homesless workers - long-time allies of the Workers' Party - are stepping up their activities.

On the one hand, the MTST - a body representing urban workers housed in the brutal shanty towns or favelas - has occupied plants left idle by German car firm Volkswagen in Sao Paulo, Brazil's southern commercial capital.

At the same time, the rural MST is turning up the heat on the country's 27,000 large landowners, whose tight control over arable land is widely blamed for the grinding poverty afflicting a majority of Brazilians.

The MST's leader last week called for "battle" against landowners, a prospect that scared the governors of Brazil's poorest region, the north-east.

Governor Wilma de Faria from Rio Grande do Norte state called the situation a "powder-keg", while neighbouring Ceara's Lucio Alcantara said the government had been taken by surprise by the strength of feeling.