Brazilian Stocks Gain on Rate-Cut Speculation; Bolsa Rises

By Paulo Winterstein and Alexander Ragir

Dec. 5 (Bloomberg) -- Brazilian stocks staged a late-day rally, paring losses for the week, on speculation that slowing economic growth and easing inflation may give the central bank room to cut interest rates next year.

Banco do Brasil SA, Latin America’s biggest government- controlled bank, jumped 7.9 percent, leading gains for financial companies as traders increased bets the benchmark rate will fall half a percentage point by January 2010. B2W Cia. Global do Varejo, Brazil’s largest online retailer, climbed the most on the Bovespa index on the prospect that lower rates will spur consumer spending. Vivo Participacoes SA rose for a second day as investors sold commodity producers and bought phone stocks.

“The good inflation signals takes away the possibility some economists were floating that there could be inflation with very low growth,” said Joao Pedro Brugger, chief equity portfolio manager at Leme Investimentos in Florianopolis, Brazil, which oversees about $35 million. “It gives space for the central bank to join other policy makers in aggressively cutting rates to stimulate the economy.”

The Bovespa rose 0.6 percent to 35,347.39, paring a weekly drop to 3.4 percent. The BM&FBovespa Small Cap index gained 1 percent. The BM&FBovespa MidLarge Cap index added 0.2 percent. Mexico’s Bolsa advanced 0.8 percent and Chile’s Ipsa increased 0.1 percent.

Inflation in Latin America’s biggest economy slowed to 0.36 percent in November, lower than the forecasts from all 40 economists in a Bloomberg survey. A separate report earlier this week showed industrial output growth slowed more than forecast in October, signaling the global slowdown is hitting Brazil harder and faster than economists predicted.

Yields Drop

The yield on Brazil’s overnight futures contract for January 2010 delivery fell 37 basis points, the sixth straight daily decline, to 13.33 percent. The rate is the lowest since April 17 and is 42 basis points, or 0.42 percentage point, below the central bank’s overnight rate.

Itau Corretora said today that with Brazil’s growth outlook worsening, its estimate of 13 percent for the benchmark lending rate was “too high.” Raymond James & Associates has forecast a half-percentage point cut to 13.25 percent next year. The next rate-setting policy meeting is scheduled for Dec. 9-10.

The European Central bank cut interest rates by three- quarters of a percentage point yesterday to contain the fallout from the financial crisis. Central banks in England, Sweden and Indonesia also lowered borrowing costs.

Banco do Brasil climbed 7.9 percent to 15.75 reais, the highest in a month.

B2W Varejo lead a rally in retailers, advancing 8.8 percent to 22.35 reais for the biggest gain since October.

Telephone Shares

Vivo, Brazil’s largest mobile-phone carrier, rose 6.6 percent to 31.85 reais.

“When commodities prices fall, as we see today, phone carriers’ shares become more attractive,” Alex Pardellas, analyst at Banif Investment Banking in Sao Paulo, said in an interview yesterday.

The Bovespa earlier dropped as much as 3.2 percent after metal prices tumbled and Banco Santander SA recommended avoiding flat-steel makers because of the “dreary” outlook for auto sales. Usinas Siderurgicas de Minas Gerais SA, Brazil’s second- biggest steelmaker, fell 1.8 percent to 22.20 reias.

Petroleo Brasileiro SA slid 2.4 percent to 18.16 reais as crude prices tumbled to the lowest in almost four years. Petrobras, as the state-controlled oil company is known, lost 9.5 percent for the week.

Mexico’s Bolsa index also reversed earlier declines, led by plastics maker Mexichem SAB after it said sales next year will rise by almost a third.

Mexichem, Latin America’s largest maker of plastic pipes, rose the most in the Bolsa index after it said its 2008 sales may reach 30.3 billion pesos ($2.2 billion), a 32 percent jump from last year. The shares gained 5.9 percent to 12.30 pesos.

Argentina’s Merval index increased 0.8 percent, Colombia’s IGBC index fell 1 percent and Peru’s Lima General index declined 2.7 percent.

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