Nov. 10 (Bloomberg) -- Brazil’s Bovespa index rose to a three-week high as better-than-estimated earnings for Gol Linhas Aereas Inteligentes SA and a gain in Petroleo Brasileiro SA overshadowed concern the government will step up efforts to weaken the country’s currency.

Gol rose to the highest since June 2008 after Brazil’s second-biggest airline said domestic demand may grow more than three times faster than previously forecast. Petrobras, as the state-controlled oil company in known, added 0.9 percent as opposition lawmakers boycotted a Senate probe into alleged tax evasion and political favoritism. BM&FBovespa SA, Latin America’s largest exchange, lost 2 percent after O Estado de Sao Paulo reported the Finance Ministry is inclined to raise a 2 percent tax on foreign purchases of stocks and bonds.

The Bovespa index added 0.1 percent to 66,303.44 as 33 stocks gained and 27 fell. The BM&FBovespa Small Cap Index slipped 0.2 percent to 1,063.13. The real dropped 0.7 percent to 1.7117 per dollar. In other Latin American markets, Mexico’s Bolsa increased 0.5 percent and Chile’s Ipsa lost 0.4 percent.

“We expect Latin American markets to rise further in 2010, but at a much slower pace than this year,” Geoffrey Dennis, a New York-based equity strategist at Citigroup Inc., wrote in a note distributed today. “The rising cycle in regional earnings should build during 2010.”

The Bovespa, up 77 percent this year, may rise another 21 percent to 80,000 by the end of 2010, Dennis wrote. Mexico’s Bolsa index will probably increase 7.7 percent from yesterday’s close to a record 33,000, he said.

Gol Earnings

Gol gained for a sixth day, adding 2 percent to 20.90 reais. A stronger real and a decline in jet-fuel prices helped the company post a profit of 77.9 million reais ($46 million) in the third quarter, compared with a net loss of 510.7 million reais a year earlier. That beat the median estimate of 58.2 million reais among three analysts surveyed by Bloomberg News.

The airline forecasts demand in the domestic market will rise as much as 14 percent this year, up from a previous estimate of an increase between 2 and 4 percent.

“Demand has been stronger than we imagined,” Chief Financial Officer Leonardo Pereira said in a telephone interview after the release. “Things that were unthinkable a few months ago are happening now.”

Tam SA, the country’s biggest airline, rose 2 percent to 28.29 reais. Empresa Brasileira de Aeronautica SA, the world’s fourth-largest airplane maker, gained 2.2 percent to 9.04 reais.

Petrobras Probe

Petrobras climbed 0.9 percent to 37.41 reais. Three opposition senators on the 11-member investigative committee refused to attend testimony today by Chief Executive Officer Jose Sergio Gabrielli, and said they would skip future meetings. The committee hasn’t been given access to all the documents requested, and testimony has been voluntary and limited, said opposition Senator Alvaro Dias.

“When the process started, we cited it as a potential source of noise that could generate confusion and volatility for the share price,” Emerson Leite, an analyst at Credit Suisse Group AG in Sao Paulo, said in a telephone interview Nov. 5. “It seems to me this risk is much more reduced now.”

BM&FBovespa, which reports earnings today, lost 2 percent to 12.46 reais. Brazil’s Finance Ministry is investigating possible loopholes used by investors to avoid paying the new tax on foreign purchases of stocks and bonds, O Estado de Sao Paulo reported, citing an interview with a government official who declined to be identified. The ministry is inclined to raise the tax rate from 2 percent and at the same time to eliminate the tax on purchases of stocks in initial public offerings, the person told Estado.

The Finance Ministry press office didn’t immediately return calls by Bloomberg News seeking comment.

‘Complementary Measure’

The government announced a 2 percent tax on foreign purchases of stocks and fixed-income securities on Oct. 19 to curb the currency’s 2009 rally, now at 35 percent. The real has risen 0.4 percent since the so-called IOF tax was announced.

“There’s a common understanding that complementary measures could be implemented” by the government to stem the currency appreciation, said Eduardo Favrin, who oversees about $4 billion in stocks as head of equities for HSBC Global Asset Management’s Brazil unit in Sao Paulo. “There could be another bad thing coming.”

The Bovespa has pared losses since Oct. 19 to 1.4 percent. It fell as much as 11 percent after the tax was announced.

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

Last Updated: November 10, 2009 16:19 EST