July 14 (Bloomberg) -- Brazilian stocks fell, sending the Bovespa to a two-month low, on the prospect that new accounting rules will hurt utility companies and concern that earnings don’t justify the index’s 30 percent gain this year.

Cia. Energetica de Sao Paulo and CPFL Energia SA led a drop in utilities on a report new accounting rules may reduce the value of assets at companies that get government concessions. Petroleo Brasileiro SA, Brazil’s state-controlled oil company, fell on a Senate probe into tax and spending policies. The Bovespa’s declines were limited as the nation’s biggest airlines, Tam SA and Gol Linhas Aereas Inteligentes SA, jumped more than 6 percent after Bank of America Corp. advised buying the shares because a stronger currency may lower debt.

“People are being cautious at these levels,” said Felipe Casotti, who helps manage the equivalent of $245 million in assets at Maxima Asset Management in Rio de Janeiro. “There’s still a lot of fat to burn.”

The Bovespa slipped 0.6 percent to 48,872.58. More than two stocks fell on the index for every one that rose. The gauge has surged this year on speculation a rebound in commodity prices and falling interest rates will bolster growth in Latin America’s largest economy. The measure now fetches 19.70 times earnings, more than double the ratio it traded in the beginning of the year.

Among other Latin American markets, Mexico’s Bolsa rose 1.6 percent, Chile’s Ipsa added 0.8 percent, and the Lima General index advanced 0.9 percent. Latin equities were bolstered by U.S. economic data showing sales at retailers rose 0.6 percent in June, more than forecast, and the biggest gain since January.

Brazil Utilities

Utility stocks fell the most in the MSCI Brazil index, dropping 0.6 percent, after Valor Economico reported Brazil plans to adopt international accounting standards that may prevent certain assets from being booked on utilities’ balance sheets.

The country’s accounting regulator plans to adopt the standards next year, the Sao Paulo-based newspaper said. The

“This may be pressuring the sector a bit,” said Januario Hostin Jr., who oversees about 60 million reais at Leme Investimentos in Florianopolis, Brazil. “This could decrease the value of their assets.”

Cesp dropped 5.4 percent to 18.85 reais, the most in four months. CPFL slid 3 percent to 30.20 reais.

Brazilian corporate earnings may fall 52 percent in the second quarter, Citigroup Inc. said in a note to clients. In contrast, Mexican corporate earnings may drop 28 percent in the second quarter, the best performance in Latin America after Peru, Citigroup said.

Petrobras declined 0.7 percent to 29.59 reais. A Brazilian Senate probe into the tax and spending policies of the company will begin Aug. 6, said Senator Joao Pedro Goncalves, head of the investigation.

Airlines Surge

Tam climbed 6.5 percent to 22.15 reais. Tam has an “attractive valuation” and will benefit from an appreciation of Brazil’s currency because about 70 percent of the company’s costs and 90 percent of its debt are linked to the U.S. dollar, Bank of America analyst Michael Linenberg wrote in a note today.

Gol added 5.6 percent to 12.50 reais. Gol was raised to “buy” from “underperform” at Bank of America, which cited the real’s appreciation, the company’s management and the prospect of improving margins. Gol was reiterated at “outperform” at Itau Corretora after Brazilian airline traffic data in June signaled improving demand.

Brazil’s real has gained 17 percent against the U.S. dollar this year, the best performance among the world’s 16 most-traded currencies.

“Now that the real has ‘turned,’ we think that the company’s non-cash financial expenses will reverse and provide a benefit to the company’s profits and losses,” New York-based Linenberg wrote.

Retail Sales Jump

Brazil’s retail sales rose more than analysts expected in May, reinforcing bets that consumer demand is driving the rebound in Latin America’s biggest economy.

Sales rose 4 percent in May from the same month a year earlier, compared with a revised 7.1 percent gain in April, the national statistics agency said. Economists anticipated an increase of 3.2 percent in May, according to the median estimate of 19 analysts surveyed by Bloomberg.

Mexican stocks gained the most this month as a higher-than- estimated gain in U.S. retail sales and improving earnings prospects bolstered the nation’s retailers.

Grupo Elektra SA, the Mexican electronics retailer controlled by billionaire Ricardo Salinas, climbed 4.1 percent. Empresas ICA, Mexico’s largest builder, rose the most in three Weeks, gaining 5.1 percent.

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

Last Updated: July 14, 2009 17:09 EDT