Temer's proposal to reform the country's social security system cleared a committee vote on Wednesday but still faced an uphill battle.

Presidential aides said the government was not certain it had secured the two-thirds vote needed to approve the bill in a full vote in the lower house.

Traders worried that Temer will have to further dilute the measure, seen as critical to limit the growth of public debt and lift Brazil from its deepest recession on record, to guarantee lawmakers' support.

"The government has already been forced to negotiate intensely at this point and made multiple concessions," said Miriam Tavares, a foreign exchange director at AGK brokerage.

The Brazilian real weakened as much as 1 percent, while the benchmark Bovespa stock index fell 1.6 percent.

Other Latin American markets also dropped, tracking a decline in prices of commodities. The Colombian peso slumped 1.6 percent as oil futures tumbled.

The slide worsened after OPEC delegates said their group and other producing countries were downplaying the chance of a bigger output when the producers meet on May 25, increasing investor concerns over a global supply glut.

Iron ore prices also tumbled 8 percent, their biggest daily fall in more than five months, weighing on shares of miners such as Brazil's Vale SA.