Brazil Stocks Tumble Into Bear Market as Mining Companies Drop

By Alexander Ragir

July 24 (Bloomberg) -- Brazilian stocks plunged, pushing the Bovespa index down more than 20 percent from its May record, as higher interest rates and a decline in metal prices sent banks and mining companies lower.

Gerdau SA and Usinas Siderurgicas de Minas Gerais SA led a drop in steelmakers on concern demand for metals is slowing as copper, nickel and aluminum futures retreated. Mining and chemical companies, which together with energy producers make up 57 percent of Brazil's market, slid 4.6 percent to a four-month low. Uniao de Bancos Brasileiros SA paced a decline in financial companies after the central bank raised its benchmark lending rate to 13 percent, higher than economists' forecast.

The Bovespa, until June the best-performing index among the world's 20 biggest markets, retreated 1,986.49, or 3.3 percent, to 57,434.37, leaving it 22 percent below its May 20 peak. A 20 percent drop is the common definition of a bear market.

``The world economy may be entering a substantial slowdown and the market is trying to price that in,'' said Keith Wirtz, chief investment officer at Fifth Third Asset Management in Cincinnati, which oversees $23 billion including Brazilian equity. ``Brazil is following the U.S. and the other markets down. No one wants to take on risk right now.''

Gerdau dropped 6.1 percent to 30.85 reais. Copper fell to a six-week low in New York as a stronger dollar reduced demand from investors seeking a hedge against inflation. Nickel fell the most in two months in London.

Usiminas, as the steelmaker is known, fell 6.7 percent to 65.05 reais.

``There's fear that global steel prices will fall, with inflation becoming such a big problem along with worries that the global economy is slowing,'' said Bernardo Lobao, an analyst with BNY Mellon Arx, which manages $5.66 billion in Rio de Janeiro.

Banks Fall

Unibanco, as the third-biggest non-state bank is known, fell 4.8 percent to 20.20 reais. Banco Itau Holding Financeira SA, Brazil's second-biggest non-state bank, dropped 4.1 percent to 33.90 reais.

Policy makers led by central bank President Henrique Meirelles raised the overnight rate by three quarters of a percentage point to 13 percent last night to bring inflation back to their target in a ``timely fashion.'' Thirty-one of 45 economists surveyed by Bloomberg News predicted a half-point increase as in the two previous meetings.

Mexico's Bolsa index fell 766.56 to 26,878.19, the lowest in more than six months, on earnings reports that missed forecasts.

Telmex Internacional SAB declined for a fourth day, dropping 2.4 percent to 7.02 pesos. The cable-TV and long- distance phone company controlled by billionaire Carlos Slim said second-quarter net income fell 24 percent to 1.19 billion pesos, falling short of the 1.86 billion pesos in profit expected by Morgan Stanley Group.

Alsea SAB dropped 3.7 percent to 10.67 pesos after Banco Santander SA called the Domino's Pizza franchise operator's second quarter results ``deeply disappointing.'' Consorcio Ara SAB, the country's fourth largest homebuilder, fell 7.7 percent after it was downgraded to ``underperform'' from ``neutral'' at Merrill Lynch & Co.

Elsewhere in Latin America, the main stock indexes in Argentina, Chile and Peru fell, while Colombia's IGBC index rose. The MSCI EM Latin America index fell 2.5 percent to 4,182.61.

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