Brazil's Bovespa Gains on Metals Price Outlook, Bank Upgrades

By Paulo Winterstein

Aug. 20 (Bloomberg) -- Brazilian stocks gained the most this month, led by metals producers and banks, after commodity prices rose and Citigroup Inc. said investors should buy financial shares as inflation concerns ease.

Cia. Siderurgica Nacional SA led gains in steelmakers after Deutsche Bank said CSN will benefit from rising metal prices in Brazil. Brazilian billionaire Eike Batista's MMX Mineracao & Metalicos SA surged on speculation it may be an acquisition target. Banco do Brasil SA and Uniao de Bancos Brasileiros SA advanced after Citigroup said inflation is peaking and valuations for the two bank stocks are ``compelling.''

``We're seeing that commodities are having decent gains, yet not enough to jeopardize the inflation outlook, and that's good for markets the world over,'' said Fabio Spinola Vianna, who helps manage $1.4 billion at Quest Investimentos in Sao Paulo. ``There were concerns about growth slowing, but this new round of Chinese investment is cheering up the market.''

The Bovespa index gained 2 percent to 54,695.53 at 10:35 a.m. New York time, the largest advance since July 30. Mexico's Bolsa rose 0.7 percent. The MSCI Latin America index jumped 3.1 percent. MSCI Colombia gained 1.4 percent on speculation the government may be preparing to ease capital controls.

CSN, the third-biggest Brazilian steelmaker, gained 3.3 percent to 52.72 reais.

``CSN remains one of the lowest cost and, in our opinion, best positioned steel companies globally,'' analysts David Martin and Jorge Beristain wrote in a note to clients today. ``Prior concerns about rising input costs have eased and CSN now appears poised to benefit from rising steel prices in Brazil.''

Usinas Siderurgicas de Minas Gerais SA, Brazil's second- biggest steelmaker, added 3.4 percent while Gerdau SA, Latin America's biggest maker of the metal, rose 3.5 percent.

Commodities Gain

The Reuters Jefferies Commodities Index rose for a third day, advancing 0.7 percent.

China's government is considering spending as much as 400 billion yuan ($58 billion), or 1.5 percent of the country's gross domestic product, to stimulate the economy and may ease monetary policy this year, said Frank Gong, head of China research at JPMorgan Chase & Co., in a research note yesterday.

Banco do Brasil, Latin America's biggest bank by assets, rose 2.3 percent to 22.70 reais. Unibanco, as Brazil's third- biggest non-government bank is known, advanced 2.3 percent to 19.29 reais. The lenders were both upgraded to ``buy'' from ``hold'' by Citigroup analyst Daniel Abut.

``As far as large-cap Brazilian bank stocks are concerned, we believe it is time to jump into the pool again'' after losses in the shares in the past 2 1/2 months, according to the note. Inflation expectations have peaked, ``allowing us to feel more confident forecasting the likely depth and length of the ongoing tightening cycle,'' the analyst wrote.

Banks Rally

Banco Bradesco SA, the country's biggest non-state bank, rose 1.9 percent to 29.72 reais, while second-biggest Banco Itau Holding Financeira SA added 2.2 percent.

Inflation may be easing, according to recent data. Consumer prices climbed 0.38 percent through the first ten days of August, down from a 2 percent increase in the previous month, the IGP-10 inflation index from Getulio Vargas Foundation showed on Aug. 18.

An index of material stocks in the MSCI Brazil index jumped 5 percent for the biggest advance among the 10 industries.

MMX, the mining company controlled by Batista, rose the most in its two years as a public company after Credit Suisse Group said it is ``likely'' to receive buyout offers.

``MMX is likely to be approached (if it wasn't already) by major players,'' analyst Roger Downey wrote in a note to investors. These ``major players'' may make an offer for MMX to increase their ore production or to guarantee supplies of iron, he wrote, without specifying likely purchasers.

Cia. Vale do Rio Doce, the world's biggest iron-ore producer, gained the most this month after Goldman Sachs Group Inc. raised its profit estimates for 2008 and 2009 on ``stronger than estimated'' second-quarter earnings.

Vale Profit Outlook

Vale will likely report profit of $3.24 per American depositary receipt this year, or 5.2 percent more than previously estimated, analyst Marcelo Aguiar wrote in a note. Profit will likely reach $4.44 per ADR next year, an increase of 3.7 percent from his previous estimate.

The MSCI Colombia index rose the most this month. Colombia is moving towards lifting capital controls on foreign equity trading after the peso's 14 percent depreciation from a mid-June high, Citigroup Inc. wrote today.

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.