Brazilian Stocks Rise on Rate Cut Speculation; Bolsa Gains

By Alexander Ragir and Paulo Winterstein

Dec. 2 (Bloomberg) -- Brazilian stocks gained as weaker- than-expected industrial production prompted traders to increase bets the central bank will reduce interest rates.

Banco Bradesco SA led a rally in banks on the prospect the slowing economy may lead to lower borrowing costs next year. Tam SA gained the most on the Bovespa after analysts said the recent decline in oil prices will boost earnings of the nation’s biggest airline. Net Servicos de Comunicacao SA and Companhia Energetica de Minas Gerais rose after UBS AG recommended that investors “remain defensive” and buy utilities, banks and cable shares.

“If the environment keeps going this way there is still a lot of room to cut rates,” said Guilherme Sand, who helps manage the equivalent of about $250 million at Solidus Brokerage in Porto Alegre, Brazil. “But then there’s the concern of policy makers about inflation with a weaker real, but I think at the end of the day depending on the environment, cutting rates would win the fight.”

The Bovespa index climbed 0.8 percent to 35,000.84. The BM&FBovespa Small Cap index fell 0.2 percent. The BM&FBovespa MidLarge Cap index rose 0.7 percent. Chile’s Ipsa slipped 0.7 percent and Mexico’s Bolsa advanced 1.4 percent.

Brazil’s industrial output increased at a 0.8 percent annual rate in October, the national statistics agency said. The median forecast of 27 economists surveyed by Bloomberg News was 3.6 percent.

The data signal economic growth will slow in the fourth quarter against the third, putting Latin America’s biggest economy “on pre-recession footing,” wrote Tony Volpon, chief strategist at CM Capital Markets in Sao Paulo.

Futures Pricing Cut

The yield on the nation’s overnight futures contract for January 2010 delivery dropped 25 basis points to 13.94 percent, showing the market is starting to price in a rate cut early in 2009, Volpon wrote in an e-mail to clients.

Brazil’s central bank may lower the benchmark lending rate by as much as 2.5 percentage points in 2009 because of the slowdown in Latin America’s largest economy, according to Brown Brothers Harriman & Co.

“With the economy slowing, we think the bank will reverse course and start cutting rates in Q1,” Brown Brothers Harriman senior currency strategist Win Thin wrote in a note to clients.

Bradesco, Brazil’s second-biggest non-government bank, rose 3.1 percent to 24.19 reais. Banco Itau Holding Financeira SA, which is merging with Uniao de Bancos Brasileiros SA to create Latin America’s biggest bank, advanced 2.5 percent to 26.44.

UBS recommended investors avoid commodity stocks and buy “domestic driven names” such as utilities, financials and cable shares. Net, the biggest cable-TV company, rose 1.4 percent and Cia. Energetica de Minas Gerais, the largest combined electricity generator and distributor, added 4.4 percent.

Tam Jumps

Tam jumped 10 percent to 17.65 reais. Gol Linhas Aereas Inteligentes SA, Brazil’s second-largest carrier, added 1.3 percent to 9.40 reais.

“Lower fuel costs will definitely help airlines’ earnings in the fourth quarter,” said Edigimar Maximiliano, an analyst at Bradesco Corretora in Sao Paulo.

Crude oil fell to the lowest in more than three years on signs the U.S., the world’s largest energy consumer, may be in the longest slump since World War II.

JBS SA rose 6 percent to 5 reais after Fitch Ratings said the world’s biggest beef producer will raise up to 400 million reais ($168 million) through banks to boost its working capital.

Sadia SA, Brazil’s second biggest food processor, gained 2 percent to 3.09 reais. The food company said the potential impact on its results from foreign currency investments declined 59 percent since the end of September. Sadia said it has $966 million in contracts for future delivery of foreign currencies, compared with $2.36 billion at the end of September.

Bolsa Gains

In Mexico, the Bolsa rose for the fourth time in five days.

Grupo Aeroportuario del Sureste SAB gained 7.3 percent to 37.1 pesos after Goldman Sachs raised its recommendation on shares of Mexico’s second-biggest non-government airport operator to “neutral” from “sell.” The shares are “likely to rebound” after a decline that left shares of Asur, as the company is known, as the least expensive Mexican airport company, analyst Daniela Bretthauer wrote.

In other Latin American markets, Argentina’s Merval rose 2.9 percent, Peru’s Lima General Index slipped 0.3 percent and Colombia’s IGBC gained 0.8 percent.

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