Brazil Stocks Fall on Earnings Growth Concern; Bolsa Retreats

By Alexander Ragir

Oct. 17 (Bloomberg) -- Brazilian stocks fell, narrowing the Bovespa index's gains for the week, as concern that slowing global growth and currency-related losses will hurt earnings overshadowed a rebound in commodity prices.

Aracruz Celulose SA, the world's biggest eucalyptus-pulp maker, tumbled almost 10 percent after posting its first quarterly loss in six years on a $1 billion charge from bad currency bets. BM&FBovespa SA, Latin America's biggest securities exchange, led a retreat in financial stocks after Citigroup Inc. said earnings growth next year may drop to 1 percent from 24 percent this year. Cia. Vale do Rio Doce and Petroleo Brasileiro SA gained, limiting the Bovespa index's losses today.

The Bovespa slid 42.63, or 0.1 percent, to 36,399.09. The index gained 2.2 percent this week, the first five-day gain in a month. The BM&FBovespa MidLarge Cap index slipped 0.1 percent, while the BM&FBovespa Small Cap index rose 1.6 percent. Mexico's Bolsa fell 0.7 percent today. Chile's Ipsa rose 1.5 percent for a five-day gain of 16 percent, the biggest among 89 global indexes.

``All the volatility is coming because there's a lot of big investors re-allocating money in different asset classes and deleveraging,'' said Milton Milioni, president of MM Milioni Investimentos in Sao Paulo. ``That brings the risk that what is cheap today, may be cheaper tomorrow.''

Aracruz dropped 9.8 percent to 3.33 reais today. The third- quarter net loss of 1.64 billion reais ($764 million) compares with net income of 260.9 million reais a year earlier. The losses sparked speculation other companies may face the same troubles. The Brazilian real has lost 26 percent against the U.S. dollar since reaching a nine-year high of 1.5545 per dollar Aug. 1.

Solvency Concerns

Losses from Brazil's 60 billion reais ($28 billion) derivatives market threaten the solvency of several businesses after the real's unexpected drop against the dollar since Aug. 1, said Paulo Vieira da Cunha, a hedge fund manager and former Brazilian central bank deputy governor.

BM&FBovespa fell 3 percent to 6.50 reais. Banco do Brasil SA, Latin America's biggest bank, slid 1.7 percent to 15.09.

The global economic slowdown will ensure ``much weaker earnings growth in coming quarters'' in Latin America, wrote Citigroup equity strategist Geoffrey Dennis in a note to clients.

Vale advanced 3.6 percent to 23.15 reais.

``Vale has shown the market it's ready to grow, and is carrying forward its several growth opportunities with a disciplined approach,'' wrote Credit Suisse Group analyst Roger Downey. ``Furthermore, Vale confirmed its bullish view on the long-term fundamentals of the industry.'' The Reuters/Jefferies CRB Index of 19 raw materials gained 2.4 percent to 282.14.

Petroleo Brasileiro SA, Brazil's state-controlled oil company, gained 3.6 percent to 22.99 reais as oil rose $2.

The Bovespa jumped 15 percent on Oct. 13, the most in nine years, after the government injected as much as $46 billion in the financial system and Europe, the U.S. and Asia agreed to support banks. Uniao de Industrias Petroquimicas SA, a Brazilian petrochemicals company which said it earned 465 million reais ($214 million) from the sale of a port terminal unit that day, rose 34 percent this week for the biggest gain in the Bovespa.

Bolsa Falls

Mexico's Bolsa index fell for a third day, led by homebuilders on speculation they would produce profits from government-backed mortgages even as Mexico's economy slows.

Urbi Desarrollos Urbanos SAB, Mexico's largest seller of low-income housing, had the biggest gain in four years after IXE Grupo Financiero SA advised buying shares on the outlook for earnings. Urbi gained 19 percent to 16.7 pesos.

For the week, the Bolsa gained 2.1 percent.

In Chile, Lan Airlines SA rose 5.8 percent to 5,500 pesos, extending a weekly gain to 17 percent, the steepest since May 2003. The biggest air carrier probably will benefit from lower fuel costs, helping offset a global economic slowdown, said Patricio Hernandez, who covers the stock for Banchile Inversiones.

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