Brazil Stocks Drop as Central Bank Minutes Raise Rate Concern

By Alexander Ragir

July 31 (Bloomberg) -- Brazilian stocks fell for the first time in three days, led by homebuilders and banks, after the minutes from the central bank's last meeting fueled speculation that interest rates may keep rising into next year.

Rossi Residencial SA and Uniao de Bancos Brasileiros SA paced declines for interest-rate sensitive stocks on concern higher borrowing costs would stifle consumer and lending growth. Lojas Renner SA, the biggest clothing retailer, led declines on the Bovespa index. JBS SA, the world's biggest beef producer, slid for the first time in four days after posting a loss.

``Until there is a perception that the interest rate hikes are going to come to an end, companies focused on internal demand will keep getting hurt,'' said Valmir Celestino, who oversees the equivalent of $2.5 billion as head of equities for Banco Safra de Investimentos in Sao Paulo.

The Bovespa index declined 441.03, or 0.7 percent, to 59,556.61 at 9:59 a.m. New York time. Mexico's Bolsa declined 0.1 percent. The MSCI EM Latin America Index slid 0.9 percent.

Rossi, the country's third-largest homebuilder, dropped 2.2 percent to 12.21 reais. Gafisa SA, Brazil's second-biggest builder, fell 3 percent to 27.35 reais.

Unibanco, as Brazil's third-biggest non-state bank is known, fell 1.4 percent to 20.92 reais. Lojas Renner declined 3 percent to 29.50 reais

Brazilian policy makers said they're ready to act ``vigorously'' for as long as necessary to bring inflation back to their 4.5 percent target by 2009, according to the minutes of their July 22-23 meeting.

More Rate Rises

The central bank will probably raise the benchmark lending rate by another 2 percentage points by yearend after the minutes of the last policy meeting, according to Goldman Sachs Group Inc.

``The minutes are clearly more hawkish that the preceding ones,'' Alberto Ramos, a senior Latin America economist at Goldman Sachs Group Inc. in New York, wrote in a note to clients.

JBS slid 2.1 percent to 8.37 reais after it posted its fourth straight quarterly net loss on expenses related to U.S. acquisitions and currency losses.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.