Brazilian Stocks Fall on Global Growth Concern; Merval Drops

By Alexander Ragir and Paulo Winterstein

Oct. 22 (Bloomberg) -- Brazilian stocks tumbled to the lowest in two years on concern the global economic slump will reduce demand for commodities and Argentina's planned seizure of pension funds may spur investors to dump emerging-market assets.

Federally controlled Banco do Brasil SA dropped 15 percent after the government authorized it to buy stakes in non- government financial companies to ease the credit crunch. Lojas Americanas SA, Brazil's biggest discount retailer, led consumer stocks to the biggest decline since at least 1995 after the International Monetary Fund said Latin America economic growth will slow. ALL America Latina Logistica SA, Latin America's biggest railroad operator, dropped the most in at least three years on concern that slowing commodity demand will hurt profits.

``In this very nervous environment we are living through, some people are avoiding risk at any cost,'' said Jacopo Valentino, who oversees $4 billion as head of Latin American equity at BNP Paribas Asset Management in Sao Paulo. ``It's a sum of the global situation and the neighbor having all these problems makes it even worse. But the imbalances they have in Argentina they don't have in Brazil.''

The Bovespa index fell 10 percent to 35,069.73, the lowest level since September 2006. The BM&FBovespa MidLarge Cap index slid 9.4 percent. The BM&FBovespa Small Cap index slipped 10 percent. Mexico's Bolsa index fell 7 percent. Chile's Ipsa lost 5.9 percent. The MSCI Emerging Markets Index fell 8.4 percent.

Argentina's stocks and bonds plunged for a second day as a planned government takeover of $29 billion of pension funds stoked concern the South American country is headed for its second default this decade. Brazil's real weakened more than 5 percent as investors sold higher-yielding assets.

Banks Decline

Banco do Brasil, Latin America's biggest lender by assets, sank 2.52 reais to 13.88 reais. Lula, in a published decree, also allowed Caixa Economica Federal, known as CEF, to create a subsidiary to act as an investment bank.

The move follows recent central bank steps to inject more than 160 billion reais ($71 billion) in the banking system by easing reserve requirements to help smaller lenders. Bank lending fell 13 percent in the first eight business days of October from the same period the previous month, central bank President Henrique Meirelles told legislators in Brasilia yesterday.

``The incomprehensibly bad timing of the decision to publish a government decree allowing for the purchase of private sector banks by public sector institutions announced this morning has led to serious doubts about the quality of Brazil's banking sector,'' wrote Tony Volpon, chief economist at Sao Paulo-based brokerage CM Capital Markets.

Retailers Slide

Cyrela Brazil Realty SA Empreendimentos e Participacoe, the biggest homebuilder, dropped 17 percent to 10.26 reais. The MSCI Consumer Discretionary Index dropped 18 percent for the biggest decline since at least January 1995.

Lojas Americanas led a drop in retailers, sliding 16 percent to 5 reais.

Growth in Latin America and the Caribbean is likely to slow to 3.2 percent in 2009, according to the IMF. Latin American economic expansion averaged 5 percent in the past four years, said Robinson. Available credit, particularly for export financing, has dried up this year and currencies have fallen as much as 27 percent against the dollar as overseas lenders and investors repatriate funds.

``Given what is happening in the rest of the world, our forecast is for growth in Latin America to slow quite noticeably,'' said David Robinson, the IMF's regional sub- director for the Western Hemisphere.

Steelmaker Gerdau fell 10 percent to 13.10 reais.

Ore Demand

Vale dropped 8.7 percent to 24.10 reais. Slowing global economic growth will reduce demand for iron ore and coal next year, Goldman Sachs Group analyst Marcelo Aguiar wrote in a note. Vale is the world's biggest iron-ore producer.

All fell 20 percent to 9.91 reais.

``Anything related to commodities is toast,'' said Lawrence de Maria, analyst at Sterne, Agee and Leach Inc. ``You're hearing about weakened demand for soybeans from China. Also you have your Argentina disaster du jour, and so there are issues there.''

The Reuters Jefferies Commodities Index fell for a second day, dropping 4.5 percent.

In Argentina, the benchmark Merval stock index plunged 10 percent, extending its decline this week to 23 percent.

President Cristina Fernandez de Kirchner's bid to seize the private funds is undermining investor confidence that was already faltering as prices on the country's commodity exports tumbled and a five-year-old economic expansion began to sputter. The last time the government sought to tap workers' savings to help finance debt payments was in 2001, just before it halted payments on $95 billion of bonds.

Mexico's Bolsa index the most since April 2000 as third- quarter earnings of homebuilder Consorcio Ara SAB and auto parts maker Alfa SAB trailed analyst estimates.

Ara, Mexico's fourth-largest builder, fell 19 percent to 3.91 pesos after third-quarter sales growth slowed and net income dropped. Alfa, the world's biggest maker of aluminum engine heads and blocks, tumbled 9.4 percent to 28.77 pesos after it reported a third-quarter loss.

Colombia's IGBC dropped 4.9 percent and Peru's Lima General index fell 9.4 percent.

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.