Blame it on Greece. That country’s runaway budget deficit and the resulting downgrades to its sovereign debt from Standard & Poor’s and Fitch Ratings have spooked investors around the world into moving into U.S. dollars for safety and out of commodities and emerging economy stock markets.

Brazil has been one of the most conspicuous victims. The Bovespa, Brazil’s major stock market, is down 2.4% today, the day of the most recent downgrade on Greece. Some Brazilian stocks are down even harder. Add in the effect of a rising dollar today and the drops for the ADRs traded in New York were 4% to 6% on the day as of 2 p.m. Eastern for stocks such as BRF Brasil Foods (BRFS), Itau Unibanco (ITUB), and Vale (VALE). Brazilian airline Tam (TAM) was down 7.5% on the day.

Just goes to show you how at this stage of the global stock market rally international cash flows completely overshadow national fundamental news.

Because the fundamental news yesterday out of Brazil was bottoms-up-on-that-caipirinha good.

In November, the government announced on December 16, Brazil’s economy created 246,695 net registered jobs. (That means Brazil’s huge off-the-tax-books job market created even more.) That gain was an all time record for a month and is up from a none-too-shabby 230,956 jobs created in October.

The country is on a path to creating 1.3 million registered jobs in 2009 and projections call for an addition of 2 million net registered jobs in 2010.

That’s great news for Brazil’s domestic consumer industries since more jobs means more consumer spending. That connection was confirmed by the release of numbers for October retail sales that showed an 8.4% increase year over year.

No news about economic growth is all good news these days as central banks look to see when they can (in the case of the United States) or should (in the case of Brazil) raise interest rates. Lower than expected GDP growth in the third quarter had raised hopes that Brazil’s central bank would leave its benchmark interest rate at 8.75%. That’s a record low benchmark rate for Brazil.

The higher than expected jobs number, however, has apparently convinced the financial markets that interest rate increases to slow the economy and head off inflation are now back on the table. That’s helped increase the damage to stock prices from fallout from the Greek crisis.

The economy is now projected to grow by 5% in 2010, according to a survey of economists by the central bank. And economists are now expecting an increase in interest rates to 10.6% by the end of 2010.

An increase like that will keep pushing the Brazilian real higher against the dollar and the currencies of other big trading partners such as China. And that will be a problem for Brazil’s exporters that are already suffering from the pain of seeing their goods become more expensive to overseas costumers as the real appreciates.

All this does suggest that anyone interested in buying into Brazil’s long-term growth story—and I am—should start their bargain hunting with Brazilian stocks with a domestic focus. Rising employment and stronger than expected economic growth should drive sales and profits for domestic companies higher fast enough to outweigh the projected increase in interest rates.

I’d add BRF Brasil Foods (BRFS), South America’s biggest poultry producer, Itau Unibanco (ITUB), a bank where faster economic growth should put an end of the need to reserve more against bad debts, and, of course, the domestic ETF Market Vectors Brazil Small Cap (BRF) that I sold out of Jubak’s Picks on December 9. That ETF is down just a little more than 3% since I sold it so it’s too soon to re-buy but I’d keep an eye on it.

I would also add Vale (VALE), the Brazilian iron ore and nickel producer, to that list even though it is an export driven company. Vale’s costs are so low and the iron ore market so concentrated that this stock makes my Brazilian watch list anyway. (For more on bargains in emerging markets see my December 16 post  https://jubakpicks.com/2009/12/16/a-rising-dollar-stalls-all-boats-so-far/ )

Full disclosure: I own shares of Itau Unibaco in my personal account.