Brazil Stocks Fall to the Lowest This Month; Bolsa Declines

By Alexander Ragir and William Freebairn

Nov. 18 (Bloomberg) -- Brazilian stocks dropped to the lowest this month, led by banks and steelmakers, on concern the slowing economy will reduce demand for everything from car loans to commodities.

Uniao de Bancos Brasileiros SA fell, sending financial stocks down to a three-week low, on speculation that bank default rates will rise amid higher unemployment. Cia. Siderurgica Nacional SA fell 6.8 percent after the steelmaker said it will revise its investment plans because of eroding demand for metals. Lojas Americanas SA dropped 4.1 percent as Itau Corretora said October retail sales may be the start of a ``marked slowdown.''

``Nobody knows how intense the slowdown will be, especially in Brazil,'' said Alexandre Vianna, who helps manage the equivalent of $7.2 billion in Sao Paulo at Suladis DTVM, a unit of SulAmerica Investimentos. ``That's the big question.''

The Bovespa fell 4.5 percent to 34,094.66, the lowest level since Oct. 28. The BM&FBovespa Small Cap index retreated 2.4 percent. The BM&FBovespa MidLarge Cap index declined 4.9 percent. Mexico's Bolsa declined 2.7 percent and Chile's Ipsa slid 1.4 percent.

Bradesco, the nation's second-biggest non-government bank, dropped 7.4 percent to 22 reais. Itau slid 7.6 percent to 23.80 reais. The MSCI Brazil/Financials Index dropped 5.7 percent to the lowest since Oct. 28.

``The crisis is arriving here and causing less consumption,'' SLW Corretora's Kelly Trentin said from Sao Paulo. ``There's an increase in defaults and that will certainly affect new loans which is negative for banks.''

Default Rates

The default rate in Brazil will rise next year as a direct result of an expected increase in the unemployment rate to 10 percent in 2010 from less than 8 percent this year, Adalberto Savioli, president of the Brazilian association of financing institutions, told Agencia Estado yesterday. Savioli expects lending to expand 10 percent next year, Agencia Estado reported. That would mean a slowdown from the 34 percent growth in lending in the 12 months ending in September.

Merrill Lynch & Co. yesterday cut its 2009 economic growth forecast for Brazil to 2.9 percent, from a previous estimate of 3.1 percent, as scarcer credit and the lagging effect of monetary tightening weigh on consumer demand.

Lojas Americanas, Brazil's biggest discount retailer, dropped 26 centavos to 6.04 reais on the prospect that the slowing economy and credit crisis will lead to lower sales the rest of this year and next.

``From October on, we'll be able to see more clearly the consumer spending blow from the credit crunch,'' wrote Itau analysts. `` The sudden interruption in the credit flow, a widespread confidence decline at both corporate and household levels, all seems to have set its toll especially in the credit- sensitive segments of the economy'' like durable goods.

Renner Bank

Rival Lojas Renner SA gained 1.2 percent to 13.87 reais after Valor Economico reported Renner plans to open its own bank in Brazil and issue credit cards.

CSN, as Brazil's third biggest steelmaker is known, fell 1.61 reais to 21.99 reais. Some investment ``will be revised,'' Chief Financial Officer Otavio Lazcano said yesterday on a conference call with investors and analysts.

Gerdau SA slid 5.8 percent to 13 reais. The Bloomberg World Iron/Steel Index dropped 4.3 percent to 151.58.

Mexico's Bolsa index fell for the fourth time in five sessions, as Telefonos de Mexico SAB and its holding company Carso Global Telecom SAB dropped after JPMorgan Chase & Co. reduced profit and share-price estimates.

Telmex Drops

Telmex, as Mexico's biggest fixed-line phone company is known, will earn less that previously expected as competition increases and the peso weakens, JPMorgan said. The analysts kept their ``neutral'' rating on Telmex and ``underweight'' rating on Carso Global.

Telmex fell the most in almost two weeks, slipping 4.1 percent to 11.60 pesos. Carso Global dropped 5.4 percent to 41.55 pesos.

Mining and materials companies dropped as prices paid to U.S. producers fell in October by the most on record as demand faltered. Grupo Mexico SAB, Mexico's biggest mining company, slipped 5.3 percent to 8.22 pesos.

Cemex SAB, the biggest cement producer in the Americas, slid as U.S. home prices fell 9 percent from a year earlier. Cemex, which gets a quarter of sales from the U.S., declined 9.6 percent to 6.15 pesos.

Argentina's Merval dropped 4.5 percent, Colombia's IGBC slipped 2.1 percent and Peru's Lima General index fell 1.2 percent.

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; William Freebairn in Mexico City at wfreebairn@bloomberg.net.