Brazil Stocks Rebound, Led by Utilities, Banks; Bolsa Rises

By Alexander Ragir and Paulo Winterstein

Sept. 30 (Bloomberg) -- Brazilian stocks rebounded from the biggest plunge in a decade after U.S. lawmakers said they intend to revive a $700 billion bank rescue and Morgan Stanley advised buying electric utilities as ``defensive'' investments.

Eletropaulo Metropolitana SA led a rally in utility stocks after Morgan Stanley cited its strong balance sheet and high dividends. Banco do Brasil SA, Latin America's largest bank, gained the most in more than a week as Deutsche Bank AG said it may be better prepared than rivals to withstand the U.S. crisis. Petroleo Brasileiro SA, Brazil's state-controlled oil company, gained as crude rebounded from its biggest drop in seven years.

``They're going to get something together in Washington that's going to unfreeze the credit markets a bit,'' said Greg Lesko, who helps oversee $900 million at Deltec Asset Management Corp. in New York. ``It will help, and if it does, I don't think global growth will go into the death spiral that some are expecting, and things will get better.''

The Bovespa index rose 7.6 percent to 49,541.27. For the month, the index dropped 11 percent, the worst performance in more than four years. The BM&FBovespa MidLarge Cap index rose 7.6 percent, while the BM&FBovespa Small Cap index climbed 5.8 percent. Mexico's Bolsa index gained 3.9 percent and Chile's Ipsa rose 4.3 percent. The MSCI Latin America Index rose 7.3 percent.

`Pass Eventually'

The rescue plan ``appears likely to pass eventually, either in its current form or with minor changes,'' Citigroup strategist Geoffrey Dennis wrote. ``These developments, therefore, are likely to trigger, at least, a short-term bounce in Latin America equities.''

The Bovespa tumbled 9.4 percent yesterday after the U.S. House of Representatives voted down the plan designed to rid financial institutions of bad loans. President George W. Bush said yesterday's defeat ``is not the end of the legislative process'' and he warned lawmakers that they must act or damage to the U.S. economy will be ``painful and lasting.'' Christopher Dodd, chairman of the Senate Banking Committee, said senators may deal with the bill as early as tomorrow.

Eletropaulo gained 13 percent to 26.50 reais, and dropped 12 percent this month. The utility controlled by AES Corp. was recommended, along with rival Cia. Energetica de Minas Gerais, by Morgan Stanley because of high dividends and strong balance sheets. Cemig, as the electric utility is known, jumped 8 percent to 37.60 reais, for a monthly gain of 6.8 percent.

Banco do Brasil rallied 11 percent to 22.75 reais, paring its monthly loss to 3.8 percent. The bank's dependency on core deposits makes its better positioned than rivals to deal with the rising funding costs and weaker asset quality caused by limited demand for assets and decelerating growth, wrote Mario Pierry, a Deutsche Bank analyst.

Petrobras surged 7.2 percent to 35.10 reais, for a monthly gain of 0.6 percent. The most heavily weighted stock on the index rose as crude gained 4.4 percent in New York.

Bolsa Gains

In Mexico, the Bolsa climbed for the first time in three days, led by plastic pipe-maker Mexichem SA. The index dropped 5.3 percent this month, the most since July.

Mexichem rose 4.6 percent to 20.02 pesos after Citigroup Inc. said it will still be able to carry out a joint venture in fluorine production after delaying a share sale. Recent share declines are ``not warranted'' and represent an ``attractive entry point,'' analyst Luis Vallarino wrote.

Chilean stocks rose the most in eight months, led by energy and materials companies, rebounding from the biggest drop in a decade.

Investors ``overreacted'' to the House rejection of the financial rescue plan, said Valentin Carril, who oversees $3 billion at Principal Asset Management SA.

Chile's pension funds, which own a 10th of the Ipsa's market value, may start to buy domestic shares again ``near term'' as inflation eases, JPMorgan strategist Brian Chase wrote.

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.