SAN FRANCISCO (Dow Jones) -- Equity markets in Latin America ended sharply lower Tuesday, with investors displaying disappointment that the. Federal Reserve didn't make more aggressive cuts in key U.S. interest rates.

The sell-off in Latin America and on Wall Street came after the Federal Reserve reduced the Fed funds target and the discount rate by 25 basis points each, putting them at 4.25% and 4.75% respectively.

"People were hoping for (rate cuts of) 50 basis points," said David Riedel of Riedel Research Group. "Investors are concerned that the cuts are not going to be sufficient to avoid a recession in the U.S. in 2008, which can be bad for Latin American stocks, especially those in Mexico where the economy is so closely tied with the U.S."

Mexico's IPSA dropped 2.7% to 30,327.36, down from Monday's close at 31, 182.75. Shares of volume leader America Movil (AMX) were hit, ending down 3.2%.

Brazil's Bovespa index fell 1.4% to end at 64,512.26, despite a 1.5% rise in market heavyweight Petrobras (PBR) which tracked a 2.5% jump in crude-oil prices above $90 a barrel.

Argentina's Merval, like the benchmark indexes in Brazil and Mexico, reversed gains ahead of the Fed announcement and ended down, by 0.5% at 2,230.43. Chile's IPSA extended earlier losses to close with a 2.7% loss to 3,165.71.

On Wall Street, the Dow Jones Industrial Average (DJI) tumbled nearly 300 points, or by 2.1%. The broader S&P 500 Index (SPX) and the Nasdaq Composite ( RIXF) each slid 2.5%.

Latin American stocks in recent sessions, as highlighted by eight consecutive advances in Mexico's IPC until Monday, had adopted a positive tone on anticipation of a rate cut. Lower rates in the U.S. make higher-yielding Latin American assets more attractive to investors.

"The main reason why we see that Latin American (and emerging market) stocks have been among the best performers is a cut in rates tends to weaken the dollar and makes foreign resource-based assets increase in price," said Bruce Zaro , chief technical analyst at Delta Global Advisors. "So consistent with that, just a 25 basis-point cut (makes investors think), 'It should have been more and we're going to take some profits for now.' "

On a year-to-date basis, the Bovespa is up 47%, the IPC is up 18%, and the IPSA is up 21%. The Merval, however, has had a more modest increase, of 7.4%.

Among individual issues Tuesday, Brazilian mining giant Vale (RIO) tumbled 2.6% and apparel retailer Lojas Renner crumbled 9.1%.

Banco Itau (ITU) fell 1.6% and Banco Bradesco (BBD) shed 0.7%.

Wal-Mart de Mexico (WMMVY) shares fell 3.1%, fixed-lined operator Telefonos de Mexico (TMX) lost 2.7% and banking firm Banorte slipped 0.8%.

Copper miner Grupo Mexico, however, gained 0.3%.

Banco de Chile fell 1.8% and utility firm Enersis (ENI) fell 3.1%.

Shares of Argentine bank Grupo Financiero Galicia (GGAL) dropped 1.2% and Banco Marco (BMA) fell 0.9%. Stock in steel tube manufacturer Tenaris (TS) ended down 1.4%.

What's next?

Critics of the rate decision said that a deeper rate reduction could have boosted investor confidence that the Fed will stay ahead of the slowdown in the U.S. economy amid the housing slump and the subprime mortgage-market fueled credit crisis, as well as a flare-up in headline inflation stemming from higher prices for oil and food.

U.S. inflation reports for November will be released Wednesday and Thursday.

Zaro at Delta Global Advisors said, however, he doesn't consider the sell-off in Latin American stocks as indication of a prolonged pullback.

"I think it's just time to take a rest here."

Riedel recommended that investors remain buyers of Brazilian assets and " selective" buyers in Argentina because their country's economies are growing stronger and because domestic-consumption activity is solid.

"If Brazil (is rated) investment grade next year, which is hoped for and expected, that is a much more important thing for Brazilian equities than what happens with the U.S. economy or if rates get 25- or 50-basis point cuts," Riedel said

While he likes the earnings performance of many individual companies in Chile, Riedel's chief concern there lies with the country's close ties with copper.

"If you have a slowdown in China, which they are trying to engineer desperately, the demand for copper could come down," and hurt Chilean equities."