Brazilian Stocks Fall on Commodity Slump, Banks’ Downgrade

By Alexander Ragir

Jan. 13 (Bloomberg) -- Brazilian stocks fell for a third day, led by banks and raw-material producers, after commodity prices tumbled and Morgan Stanley downgraded financial shares on the prospect of declining earnings.

Banco Itau Holding Financeira SA and Uniao de Bancos Brasileiros SA led the drop in banks after Morgan Stanley lowered its recommendation on Brazil’s financial industry to “cautious” from “attractive.” Cia. Vale do Rio Doce, the world’s biggest iron-ore miner, fell 1.1 percent as metals prices plunged to the lowest level this year.

“Everything is slowing here and around the world,” said Felipe Taylor, who helps manage the equivalent of $62 million at Axio Investimentos in Rio de Janeiro. “There wasn’t much in the real economy to justify the gains this year.”

Brazil’s Bovespa index slid 292.80, or 0.7 percent, to 39,110.67 at 8:34 a.m. New York time. Chile’s Ipsa dropped 0.8 percent. The MSCI Emerging Markets index declined 0.8 percent.

Itau sank 1.3 percent to 26.98 reais. Unibanco, as the bank Itau is buying is known, fell 0.8 percent to 15.08 reais. Itau and Unibanco were cut to “equal-weight” from “overweight,” Morgan Stanley analyst Jorge Kuri wrote. He said nonperforming loans were increasing while volumes were decreasing. Kuri lowered his earnings estimates for the banks by an average of 10 percent to 15 percent for 2009.

Vale fell 0.9 percent to 25.94 reais. The Bloomberg Base Metals 3-Month Price Commodity Index slid 3 percent to 111.52, the lowest level since Dec. 30.

Steelmakers dropped after Goldman Sachs Group Inc. said falling Brazilian demand will pull down long steel prices 20 percent this year. Usinas Siderurgicas de Minas Gerais SA, Brazil’s biggest flat-steel maker, fell 1.8 percent to 28.92 reais. Flat steel prices will likely drop 15 percent in 2009, Goldman said. Cia. Siderurgica Nacional SA, the second-biggest flat-steel maker, slid 2.6 percent to 33.59 reais.

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