Bloomberg News

Bovespa Drops First Day in Three as Banks Fall on Europe Concern

October 25, 2011

Oct. 25 (Bloomberg) -- The Bovespa stock index dropped for the first day in three as financial stocks tumbled on concern Europe’s debt crisis may spread to banks around the world.

Banco Santander Brasil SA, the Brazilian unit of Spain’s biggest bank, fell the most in three weeks after it was cut to “neutral” from “overweight” at JPMorgan Chase & Co. Cia. Energetica de Minas Gerais, the power company known as Cemig, plunged after it bid for a 21 percent stake in EDP Energias de Portugal that the Portuguese government is selling, according to a regulatory filing.

The Bovespa fell 1.1 percent to 56,285.99 at the close of trading. Forty-eight stocks fell on the index, while 18 rose. The real weakened 0.9 percent to 1.7658 per U.S. dollar.

“Europe’s debt is not just a problem for local governments, since most of it is held by banks,” Alexandre Ghirghi, who manages about 150 million reais ($85 million) at Metodo Investimentos, said by phone from Sao Paulo. “If countries can’t keep up with the debt payments, banks will surely suffer. And when banks are in trouble, it doesn’t matter where they’re based, the problem quickly spreads.”

European leaders will meet in Brussels tomorrow for a second summit in four days to find ways to enhance the firepower of a regional rescue fund.

Finance Ministers Meeting

A separate meeting of finance ministers was canceled. The finance chiefs will now meet at an as-yet undetermined time after the summit to work out the technical details of the main elements of the rescue plan being drafted, including safeguarding banks and writing down Greek debt, an EU official said.

Chancellor Angela Merkel said that Germany opposed the inclusion of a reference to the European Central Bank continuing its bond-buying program in a draft text prepared for the summit.

While officials are still working on the text, “the wording doesn’t state that there should be more secondary market purchases, but rather that the non-standard methods of the European Central Bank could be pursued further,” Merkel told reporters in Berlin today.

Foreign investors have pulled 360.1 million reais from Latin America’s largest equity market in the year through September, data from the Sao Paulo exchange show.

Santander Brasil tumbled 4.5 percent to 14.74 reais. Cemig tumbled 3 percent to 26.75 reais.

Vale SA, the world’s largest iron-ore producer, slid 0.9 percent to 39.74 reais after earlier declining 2 percent as the cash price for the steelmaking material for immediate delivery to China, a benchmark for Asia, dropped the most in more than two years.

Iron-Ore Prices

Iron ore for delivery to the port of Tianjin fell 7.2 percent to $131.70 a metric ton, according to a price index compiled by The Steel Index Ltd. That’s the biggest drop since August 2009, and is the lowest price in 15 months.

Vanguarda Agro SA, a farm company backed by Spanish billionaire Enrique Banuelos, fell 3.2 percent to 61 centavos after Chief Executive Officer Bento do Amaral Peixoto Moreira said it may sell new shares or bonds.

Brazil’s benchmark equity gauge has rebounded 16 percent from an Aug. 8 low, after plunging 33 percent from its 2010 bull-market peak. The measure 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 5.75 billion reais in stocks in Sao Paulo yesterday, 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, Glenn J. Kalinoski

To contact the reporter on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

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


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