UPDATE 1-Volkswagen fires 1,800 in Brazil, workers strike


(Recasts with layoffs, strike, previous Brasilia)

SAO PAULO, Brazil, Aug 29 (Reuters) - The Brazilian unit of Volkswagen AG on Tuesday distributed 1,800 job termination letters at its Sao Bernardo do Campo car plant in what could be the beginning of more layoffs and a possible plant closure.

Workers at the plant approved a strike starting immediately in response to the firings, which will be effective from November and follow months of negotiations with management.

Late on Monday, Brazil's state-run development bank BNDES said it would halt a loan worth 497 million reais ($232 million) to the automaker until VW concludes negotiations with local unions over layoffs and wages and decides whether or not to close its plant.

Last week, Volkswagen threatened to shut down the Sao Bernardo plant, also known as Anchieta and its oldest plant in Brazil. President Luiz Inacio Lula da Silva started his career there as a metalworkers union leader.

It also said last month it may lay off between 4,000 and 6,000 workers until 2008 to staunch losses caused by an unfavorable foreign exchange rate. Volkswagen employs 21,000 people in Latin America's largest country.

Labor Minister Luiz Marinho met with Lula's chief of staff, Dilma Rousseff, and state development bank head Demian Fioca before announcing the government's decision on the loan.

"We will see the impact of negotiations in the investment strategy," Fioca told reporters after the meeting.

Automakers like Volkswagen and General Motors Corp. have said they would have to resort to layoffs because of falling exports after the Brazilian currency's sharp appreciation versus the dollar in the past two years.

Volkswagen has said the company may forgo exporting 100,000 vehicles until 2008 because of the exchange rate. Exports account for 40 percent of Volkswagen's Brazilian output. Brazil's currency, the real , has been trading around five-year highs against the dollar for weeks. ($1=2.14 reais) (Additional reporting by Cesar Bianconi and Marcelo Mota)



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