SAO PAULO (May 25 2003) : Business volume on Brazil's physical soya marketwas sluggish as producers held back in hopes of higher prices despiteconcerns over mad cow disease that triggered light nearby covering, saidtraders.

"Producers are still holding off," said Steve Cachia, a soya trader atCerealpar brokerage.

"They're only selling to pay bills. They think prices will improve, or atleast they don't know the impact of the discovery of mad cow in Canada."

The Canadian Food Inspection Agency earlier this week announced its firstcase of bovine spongiform encephalophathy (BSE), or mad cow, and said itwas testing two other herds for the brain-wasting disease.

"Nobody on the soya market here knows for sure how this may affect themarket," said trader Noberto Freund of Visao Corretora.

"It is possible that Canadian ranchers will have to replace meat proteinswith green proteins in cattle feeds."

The use of animal proteins from rendered sheep and cattle parts in thefeed of cattle is believed to spread BSE among herds.

When BSE swept through Europe in the 1980s, governments restricted the useof bone meal in feeds.

Freund said the potential for an upward swing in international prices,should mad cow prompt regulation forcing ranchers to use other proteinslike soya, triggered some local buying earlier in the week to coverpre-established delivery obligations.

"But there has been no real change in overall long-term demand, as I seeyet," said Freund.

Brazil's real seemed to have found a stable trading range between 2.90 and3 to the dollar in recent weeks, which tends to encourage more activetrading than when the currency is more volatile.

Traders said the sharp fall in soyabean futures prices on the ChicagoBoard of Trade on Thursday halted what little producer sales there werelocally.-Reuters