Brazil Stocks Drop Most in Week on Profit Outlook; Bolsa Falls

By Alexander Ragir and William Freebairn

Dec. 1 (Bloomberg) -- Brazilian stocks dropped the most in a week on speculation the global economic slowdown and decline in commodity prices will reduce earnings for the country’s biggest raw-materials producers next year.

Gerdau SA led a retreat in metal producers after U.S. manufacturing contracted in November at the steepest rate in 26 years and factory indexes in China and Europe fell to records. Cosan SA Industria e Comercio, the biggest ethanol producer, slid 9.8 percent as JPMorgan Chase & Co. said lower oil prices and export barriers will slow demand for the sugar-based alternative fuel. Homebuiler Rossi Residencial SA led declines on the Bovespa as economists raised their interest-rate forecasts for next year.

“The market wants to recover but we keep getting weak economic numbers,” said Eduardo Favrin, who oversees $2 billion in Brazilian stocks as head of equities at HSBC Investments Brasil in Sao Paulo. “The market can’t forget about the principal problems and the economic indicators are going to stay really bad for a while longer.”

The Bovespa fell 5.1 percent to 34,740.50. The BM&FBovespa Small Cap index sank 4.7 percent. The BM&FBovespa MidLarge Cap index declined 5.4 percent. Mexico’s Bolsa retreated 4.9 percent and Chile’s Ipsa slipped 3 percent. The MSCI Emerging Markets Index dropped 2.7 percent.

In the U.S., the world’s biggest economy, manufacturing contracted in November at the fastest pace in 26 years, putting American factories at the forefront of a global industrial slump emanating from the lack of credit. Chinese manufacturing shrank the most on record and export orders plunged, according to two indexes of purchasing managers.

Earnings Decline

Banco Santander SA said earnings for Latin companies will drop 8.1 percent next year because of the decline in commodity prices and weak currencies. The UBS Bloomberg Constant Maturity Commodity Index slid 3.8 percent and has fallen 48 percent since the July 2 high.

Gerdau SA, Latin America’s biggest steelmaker, fell 7.6 percent to 13.44 reais.

Brazil’s economic growth will probably be between 5 percent and 5.2 percent this year, Finance Minister Guido Mantega said. The “challenge” will be to grow 4 percent in 2009, he said.

While the worst of the global crisis is over, Brazilian companies haven’t been able to obtain foreign credit yet, Mantega said. Petroleo Brasileiro SA, the state-controlled oil company, is being forced to step up local borrowing and local companies in general haven’t been able to meet 25 percent to 30 percent of their financing needs, he said.

Petrobras slid 8.3 percent to 18.40 reais. Crude oil fell below $50 a barrel after the Organization of Petroleum Exporting Countries deferred a decision to reduce output until its next meeting on Dec. 17.

Sector Caution

Cosan sank 1.10 reais to 10.10 reais after JPMorgan began coverage of the world’s second-biggest sugar-cane processor with an “underweight” rating.

“The sector has some interesting short-term drivers, but we worry about the long-term outlook,” wrote JPMorgan analysts Debbie Bobovnikova and Diogo Miura in a note. “Protectionism in key export markets for both sugar and ethanol, along with the possibility of falling gasoline prices in the domestic market, makes us cautious on the sector in the long term.”

Rossi, Brazil’s third-biggest homebuilder, fell 9.9 percent to 3.10 reais. Cyrela Brazil Realty SA Empreendimentos e Participacoes, the largest homebuilder, dropped 5.9 percent to 7.38 reais. Uniao de Bancos Brasileiros SA, Brazil’s third- largest non-government bank, dropped 2.9 percent to 14.32 reais. Banco Bradesco SA fell 4.7 percent to 23.47 reais.

Brazil’s inflation rate will end 2009 at 5.25 percent, up from a 5.20 percent forecast a week earlier, according to the central bank survey of about 100 economists. The central bank targets inflation of 4.5 percent.

Bolsa Drops

Mexico’s Bolsa fell for the first time in four sessions, led by raw-material producers, as drops in global manufacturing raised concern about economic growth and commodity demand.

Cemex SAB, North America’s biggest cement producer, fell for the first time since Nov. 21 as U.S. manufacturing shrank. Cemex gets about a quarter of its revenue from the U.S. Grupo Mexico SAB, the country’s biggest copper miner, dropped 7.3 percent as prices of the metal declined. Industrias Penoles SAB, the world’s biggest primary silver producer, fell the most in over a week as prices of the precious metal tumbled.

Cemex declined 13 percent to 8.37 pesos. Penoles slid 13 percent to 100.73.

Argentina’s Merval fell 6.9 percent, the most in five weeks. Colombia’s IGBC dropped 1.9 percent and Peru’s Lima General Index declined 3.7 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.