Brazilian Stocks Drop on Rate, Retail Outlook; Bolsa Climbs

By Alexander Ragir and William Freebairn

Dec. 9 (Bloomberg) -- Brazilian stocks fell for the first time in three days as faster economic growth spurred traders to pare bets the central bank will cut borrowing costs and an analyst said tighter credit will hurt retailer profits.

Cia. Brasileira de Distribuicao Grupo Pao de Acucar, the country’s biggest food retailer, and Globex Utilidades SA fell as much as 6.5 percent after Credit Suisse Group AG cut its rating on the stocks, citing slowing sales. Banco Itau Holding Financeira SA dropped for the first time in six days as a 6.8 percent jump in third-quarter gross domestic product cemented expectations the central bank will leave interest rates unchanged tomorrow.

“The consumer sector is the most affected by rates,” said Julio Martins, who oversees $173 million as investment director at Banco Prosper in Rio de Janeiro. “The downgrades of Globex and Pao de Acucar raised concern about how they’ll be hit by the credit crunch.”

Brazil’s Bovespa Index dropped 0.8 percent to 37,968.11. The BM&FBovespa Small Cap index slipped 0.4 percent. The BM&FBovespa MidLarge Cap index fell 0.5 percent. Chile’s Ipsa rose 0.1 percent, and Mexico’s Bolsa gained 1.3 percent.

Itau retreated 0.9 percent to 29.65 reais.

The yields on Brazil’s interest-rate futures contracts and local bonds rose for the first time in more than a week after the GDP report showed an unexpected acceleration in growth. Investors yesterday pushed yields to an eight-month low on expectations that a worsening economic outlook would damp inflationary pressures, prompting policy makers to begin cutting interest rates in the months ahead.

Maintaining Rates

Brazil’s central bank is forecast tomorrow to leave its benchmark interest rate unchanged at 13.75 percent, according to the median forecast of 46 economists in a Bloomberg survey.

Pao de Acucar fell 6.3 percent to 35.60 reais. Credit Suisse cut the retailer to “underperform.”

“Following the easing of commodity prices (especially after the global credit crisis), we expect same-store sales to decelerate over the next few quarters,” analyst Marcel Moraes wrote in a note yesterday.

Globex, the owner of Brazil’s Ponto Frio consumer- electronics and home-appliance stores, dropped 3.3 percent to 6.19 reais after declining as much as 6.5 percent. Moraes cut its rating on the stock to “underperform” from “neutral,” saying that it is “highly exposed” to tighter credit.

The Bovespa has fallen 41 percent this year, poised for its worst year on record, as the biggest economic crisis since the Great Depression hurt growth prospects and slowed demand for raw materials.

Mexico’s Bolsa Advances

Mexico’s Bolsa index rose for a third day, led by cement- maker Cemex SAB on speculation it could gain from a U.S. plan to stimulate the economy by spending on roads and bridges.

Cemex, North America’s largest cement producer, gets about a fourth of revenue from the U.S. On Dec. 6, President-elect Barack Obama said he would propose the biggest infrastructure spending plan since the 1950s. Cemex also gained as pending sales of existing homes fell less than economists forecast in October. Cemex climbed the most in the Bolsa index, advancing 7.4 percent to 13.58 pesos.

Empresas ICA SAB, Mexico’s biggest construction company, rose to the highest in two months after it authorized the Aramburuzabala family to raise its stake to as much as 10 percent. The Aramburuzabalas said they owned about 5.1 percent of stock in ICA in a filing yesterday with the U.S. Securities and Exchange Commission. ICA rose 7 percent to 21.91 pesos.

Argentina’s Merval climbed 2.1 percent, Colombia’s IGBC gained 2.4 percent and Peru’s Lima General index climbed 5.1 percent.

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