Bloomberg News

Bovespa Falls on Brazil Economic Outlook, Global Growth Concern

October 17, 2011

Oct. 17 (Bloomberg) -- The Bovespa stock index fell for the first time in a week as economists cut their forecasts for Brazil’s economic growth and boosted inflation projections, while concern mounted that the global recovery may falter.

Vale SA sank the most in three weeks as metals prices dropped and a report said the miner is giving Chinese customers the option of paying for iron ore in the fourth quarter at prices close to the spot-market level. PDG Realty SA Empreendimentos & Participacoes, Brazil’s biggest homebuilder by revenue, led declines for companies that depend on domestic demand.

The Bovespa fell 2 percent to 53,911.33 at 6:15 p.m. in Sao Paulo, retreating from the biggest weekly gain in more than two years. Fifty-one stocks dropped on the index today while 17 rose. The real weakened 2.3 percent to 1.7741 per dollar.

“The economy is slowing, and inflation is still high,” said Marcello Paixao, a money manager at Sao Paulo-based hedge fund Principia Asset Management. “Brazil is an underweight in many global portfolios.”

Economists covering Brazil cut their predictions for economic growth this year and next, while raising their 2012 inflation forecast for a seventh straight week. Gross domestic product will expand 3.6 percent next year, according to the median forecast in an Oct. 14 central bank survey of about 100 economists published today, from a forecast of 3.7 percent the previous week. Consumer prices will rise 5.61 percent in 2012, the survey showed, up from a previous forecast of 5.59 percent.

PDG dropped 6.1 percent to 6.72 reais as the BM&FBovespa Real Estate Index fell 3 percent.

Europe Debt Outlook

Global stocks and commodities retreated as Germany damped expectations for a fast resolution to Europe’s debt crisis and a report showed New York-area manufacturing shrank more than forecast. Steffen Seibert, German Chancellor Angela Merkel’s chief spokesman, said European Union leaders won’t provide the quick ending to the region’s crisis that global policy makers are pushing for at an Oct. 23 summit. The Standard & Poor’s GSCI index of 24 raw materials lost 0.8 percent.

Vale SA, the world’s largest iron-ore producer, declined 3.8 percent to 38.74 reais. Vale and other miners are ceding to pressure from Chinese steelmakers unhappy with paying the higher iron-ore prices set in quarterly contracts, following recent declines in the spot price, O Estado de S. Paulo newspaper reported, citing an unidentified executive in the mining sector.

The Bovespa entered a bear market in July after plunging 20 percent from its 2010 bull-market peak. The measure has since extended that drop to 26 percent and trades at 9.7 times analysts’ earnings estimates, weekly data compiled by Bloomberg show. That compares to a ratio of 10 for MSCI Inc.’s gauge of 21 developing nations’ equities.

Traders moved 5.4 billion reais ($3 billion) in stocks in Sao Paulo today, data compiled by Bloomberg show. That compares to a daily average this year of 6.58 billion reais through Oct. 13, according to data from the exchange.

--Editors: Richard Richtmyer, Brendan Walsh

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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