Bovespa Rises to 2-Month High on Rate Speculation, Oil Drop

By Alexander Ragir

Dec. 18 (Bloomberg) -- Brazil’s Bovespa index climbed to a two-month high on speculation policy makers may cut borrowing costs after the central bank said lower commodity prices were damping inflation and oil prices tumbled.

Rossi Residencial SA and Lojas Renner SA led a rally in homebuilders and retailers on speculation lower interest rates would bolster consumer spending. Usinas Siderurgicas de Minas Gerais SA, the biggest supplier of steel for the auto industry, gained 3.5 percent on the prospect of increased auto demand. Gol Linhas Aereas Inteligentes SA rose, capping a 14 percent three- day gain, as lower oil prices may boost profit.

“The central bank has been very quick to react and has been making sure there’s enough money for trade lines along with helping out sectors in the eye of the storm like the auto industry,” said Jacopo Valentino, who oversees $2 billion in Latin American stocks at BNP Paribas Asset Management in Sao Paulo. “The risk of sliding into a recession in Brazil is limited.”

The Bovespa Index gained 538.87, or 1.4 percent, to 40,486.30 at 8:44 a.m. New York time. Ten stocks rose for every one that fell on the index. Chile’s Ipsa gained 0.1 percent.

Rossi, Brazil’s third-biggest homebuilder, jumped 5.1 percent to 3.74 reais. Lojas Renner, Brazil’s biggest publicly traded clothing retailer, climbed 3.5 percent o 16.05 reais.

“The committee considers that the risk of a less benign inflation scenario materializing has fallen compared to a few months ago, though remains a relevant possibility,” policy makers said, according to the minutes of their Dec. 9-10 meeting released today on their Web site.

Rate Outlook

The majority of policy makers discussed the possibility of cutting the benchmark interest rate by a quarter of a percentage point before deciding unanimously to leave the so-called Selic rate unchanged at 13.75 percent, citing an economic environment of “great uncertainty.”

The minutes may cement expectations that bank President Henrique Meirelles will cut rates at the bank’s next meeting Jan. 20-21, economists said.

Usiminas, as Brazil’s second-biggest steelmaker is known, advanced 3.5 percent to 29.49 reais.

Gol gained 5.8 percent to 11 reais. Tam SA, Brazil’s biggest airline, rose 2.5 percent. Fuel makes up about 40 percent of costs for airlines. Crude oil prices dipped to a four-year low yesterday after U.S. crude and fuel stockpiles gained and on concern OPEC members may not comply with agreed cutbacks.

“All in all we are removing the crazy oil prices that was creating trouble for so many industries, especially airlines,” said Valentino. Oil prices below $40 a barrel “sounds like music.”

The Bovespa has fallen 37 percent this year, poised for the worst year on record, as the credit crisis and global slowdown crimped demand for the nation’s commodities. The BM&FBovespa Small Cap index climbed 1.1 percent. The BM&FBovespa MidLarge Cap index gained 0.9 percent.

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