Brazilian Stocks Tumble on Earnings Concern; Argentina Gains

By Alexander Ragir and James Attwood

Oct. 23 (Bloomberg) -- Brazilian stocks fell for a third day after analysts cut their economic growth estimates on the prospect of slower commodities demand and said the real's decline will reduce profits for the biggest retailers and food producers.

Cia. Brasileira de Distribuicao Grupo Pao de Acucar led retailers lower after Deutsche Bank AG cut profit estimates for the industry next year. Aracruz Celulose SA extended its three- day drop to 26 percent on concern it may post more losses on currency derivatives. Uniao de Bancos Brasileiros SA fell almost 10 percent after RBC Capital Markets lowered Brazil's 2009 economic growth forecast to 2.5 percent.

``It's a combination of a lot of bad news,'' said Julio Martins, who oversees $173 million as investment director at Banco Prosper in Rio de Janeiro. ``We have speculation companies will be hurt by the currency volatility, worries about credit and the financial sector, coupled with a sharp drop in commodities.''

The Bovespa index dropped 3.6 percent to 33,818.49. Mexico's Bolsa index dropped 5.3 percent. Chile's Ipsa rose 0.2 percent. Argentina's Merval gained 2.4 percent. The MSCI Emerging Markets Index fell 3.7 percent.

Brazilian retailers' earnings estimates were cut by an average of 9 percent due to ``a further slowdown and weaker currency in Brazil than previously anticipated,'' wrote Deutsche analyst Reinaldo Santana.

Pao de Acucar dropped 4.3 percent to 27.70 reais.

Internet retailer B2W Cia. Global do Varejo fell 3.7 percent to 23.40 reais after Deutsche cut the retailer's share-price estimate to 50 reais from 70 reais.

Brazil Growth

RBC lowered its 2009 economic growth forecasts for Brazil and Mexico as a slowing global economy will erode demand for commodities and curb capital flows to emerging markets.

The Brazilian economy will expand 2.5 percent next year, compared with a previous estimate of 4 percent, said Nick Chamie, head of emerging-market research for RBC.

Finance Minister Guido Mantega has said economic growth in 2009 should slow to between 4 percent and 4.5 percent, from an estimated 5 percent this year.

Cia. Vale do Rio Doce, the world's biggest iron ore miner, dropped 3.3 percent to 23.30 reais. Copper fell to a three-year low and nickel dropped to the lowest since 2003 on speculation the global economic slump will crimp demand for metals.

BM&FBovespa SA fell the most on the Bovespa, losing 12 percent to 4.86 reais. Investors estimate that average daily trading at Latin America's biggest securities exchange will fall below 5 billion reais as share prices fall and investors stay away from riskier assets, said Victor Mizusaki, analyst at Itau Corretora in Sao Paulo.

Currency Concerns

Aracruz dropped 10 percent to 2.55 reais. The company is calling on banks to negotiate new terms for derivatives positions, Valor Economico said yesterday. It reported a net financial loss of 2.46 billion reais in the third quarter, including a charge of 2.1 billion reais for derivatives contracts.

Banks including Banco Itau BBA SA have been involved in derivatives transactions with Aracruz and are apprehensive on the prospect of negotiations, Valor said, without saying where it got the information.

Banco Itau Holding Financeira SA, the parent of Banco Itau BBA SA, fell 8.2 percent to 19.59 reais. Unibanco, the third- biggest non-government bank, fell 1.50 reais to 11.50 reais.

The real rose 5.2 percent against the dollar today after Brazil's central bank stepped up its interventions in the foreign-exchange market. It said it's prepared to sell as much as $50 billion of currency swaps to stem a two-month, 28 percent tumble in the real.

Merval Rebounds

Argentina's Merval rose for the first time this week after lawmakers said they would seek to limit how the government uses $29 billion in pension assets it plans to confiscate.

``After two days of such strong falls, there are some who get motivated to invest a bit of money,'' said Francisco Schumacher, an analyst at Raymond James & Associates Inc. ``The idea is that Congress limits what the government can do with these funds. What they don't want is that everything is sold to finance the government.''

The private pension funds, set up in 1994 to help bolster capital markets, own about 27 percent of shares available for public trading in Argentina.

Tenaris SA, the world's largest maker of pipes for the oil and steel industry, rose 3.4 percent after crude oil rebounded from a 16-month low.

Mexico's Bolsa fell for a third day, led by Desarrolladora Homex SAB, the biggest homebuilder.

Homex dropped 9.9 percent to 44.64 pesos after a mortgage finance company got government assistance, signaling the lender may lack liquidity needed to fund loans.

In other Latin American markets, Peru's Lima General fell 4.4 percent and Colombia's IGBC slid 3 percent.

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net. James Attwood in Santiago at jattwood3@bloomberg.net.