SAO PAULO, Brazil (CNN) -- World financial markets were looking better Thursday but remained on red alert as Brazil faced a decisive day in its struggle to avoid a Russia-style financial meltdown.
"Thursday is going to be another very nerve-racking day" in stock market trading, said Constantin Jancso of MCM Consultores in Sao Paulo, Brazil.
Brazil's Central Bank devalued the real Wednesday, scrapping a mini-band within which the real traded against the dollar and pegging it instead within a new, wider maxi-band.
The real plunged quickly to the new band's outer limit, down more than 8 percent from Tuesday's close at 1.32 to the dollar.
European stock markets began to recover gingerly Thursday from their heavy losses, while the dollar was firm against the euro and yen after limited damage in the Asian markets.
In Asian markets, stock market falls ranged from nearly 5 percent in Seoul to little changed in Hong Kong. Tokyo managed to gain 2.5 percent as a weakening yen boosted export prospects.
Asian analysts, all too familiar with currency collapses in their countries, said Brazil's move had been in the cards, and their region was fairly sheltered from its impact at present.
UK stocks were expected to move tentatively higher after taking what one trader called a "pretty hard savaging."
French Finance Minister Dominique Strauss-Kahn said the international financial community supports Brazil, adding that he has been in close contact with his G7 counterparts.
"I am confident that Brazil will emerge from this crisis, but there could be some ups and downs along the way," Strauss- Kahn said.
"The situation in Brazil is not good," he said, adding that it is not as alarming as the financial crises in Russia and Asia.
Japan -- which emerged as a vocal critic of the International Monetary Fund after the Asian crisis broke -- gave the IMF a public vote of confidence on Thursday.
Finance Minister Kiichi Miyazawa said the IMF and the Group of Seven (G-7) -- the seven leading industrialized nations - - could handle the fallout from Brazil's currency devaluation.
"Both the IMF and the G-7 are used to dealing with economic crises, and they will be able to cope," Miyazawa said.
A $41 billion IMF-led package put together last November was aimed at preventing Brazil's incipient woes from flaring into a crisis. The IMF rescue deal included tough Brazilian promises to rein in the country's budget deficit.
The nation was thrown back into turmoil last week when a rogue state governor announced a 90-day moratorium on debt payments to the central government.
"Brazil's situation has been known to all (of us) in recent months. I believe the IMF and U.S. authorities, a lot of people have been helping out. So I think the contagion will not be too great," said Hong Kong Financial Secretary Donald Tsang.
Like Asian shares and currencies, the region's debt markets also did not panic on Thursday, but the fright was enough to give the Thai government second thoughts about an imminent bond issue.
Deputy Finance Minister Pisit Lee-atham said the sovereign issue, delayed last year because of the Asian and Russian financial and economic crises, could be shelved again.
"The market may not immediately be able to distinguish different emerging markets like Brazil and Thailand ... We had hoped to float our global bonds after market sentiment improves but it looks like this may have to be postponed," he said.
Thailand, one of the IMF's star pupils in the economically distressed region, had planned to issue many of the $5 billion worth of bonds during 1998-2000.
But Pisit said Thailand, where the Asian crisis began with its own devaluation of the baht in mid-1997, had endured worse.
"I believe the Brazil crisis could be easier to tackle than the Russian crisis," he said.
South Korea 'ready to counter'
South Korea's government, which like Thailand is relying on IMF funds for recovery, held an emergency meeting of senior officials on Thursday to discuss the impact of Brazil's move.
The finance ministry said a major direct impact on the local economy was unlikely because of the small South Korean financial exposure to Brazil.
However, "The indirect impact felt through international financial markets can be serious and therefore (the government) needs to stay ready to counter," a Finance Ministry statement said.
Brazilians eye capital outflows
In Brazil, all eyes will be on the capital outflows -- the make-or-break indicator of the government's risky bet, analysts said.
An estimated $1.5 billion poured out of Brazil Wednesday. Unless the tide turns, Brazil could simply run out of cash to defend the real currency, the cornerstone of four rare years of economic growth and low inflation.
Markets had long considered the real overvalued, perhaps by as much as 20 percent. But keeping the currency strong was a mantra of President Fernando Henrique Cardoso's government.
Stunned investors were also unnerved Wednesday by the resignation of Central Bank President Gustavo Franco, one of the mentors of Brazil's newfound economic stability who quit rather than put into practice a devaluation he opposed.
Brazil's reserves -- the country's best means of defending the real -- stood at about $45 billion, already down about $3 billion so far this month, market calculations showed.
"The markets are likely to want to put Brazil's new foreign exchange policy to the test now," said Jose Carlos Faria, senior economist with ING Bank in Sao Paulo.
An interest rate increase may also be in the works to defend the new currency, as Finance Minister Pedro Malan admitted late Wednesday.
