June 16 (Bloomberg) -- Brazilian stocks fell, sending the Bovespa index to the lowest in three weeks, as metals declined on a drop in U.S. industrial production and Cia. Paranaense de Energia tumbled after saying it won’t raise electricity prices.

Gerdau SA, Latin America’s biggest steelmaker, and Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-biggest maker of the metal, fell more than 3 percent after U.S. output at factories, mines and utilities dropped. Copel, as the utility controlled by Parana state is known, slumped the most in five months. Petroleo Brasileiro SA dropped more than 2 percent as oil reversed gains.

“We’re seeing that industry in the U.S. and Europe aren’t reacting positively and is doing worse than people expected,” said Carlos Camacho, who helps manage $1 billion in assets at GAP Asset Management in Rio de Janeiro. “The market gained a lot as investors diversified away from dollars and bought commodities, until prices got too stretched and expensive and it stopped being reasonable and so people took profits.”

The Bovespa slipped for a second day, losing 1.6 percent to 51,205.78. The decline extended a 2.9 percent drop yesterday that sent the measure to its lowest level this month. Mexico’s Bolsa index fell 2.7 percent and Chile’s Ipsa lost 1.3 percent.

U.S. industrial output fell 1.1 percent, more than the 1 percent contraction expected. Capacity utilization also fell more than expected, the Federal Reserve said. Industrial metals declined for a third day, with the UBS Bloomberg CMCI Industrial Metals index falling 0.9 percent.

Gerdau, which gets about 40 percent of revenue from North American sales, slid 3.7 percent to 19.55 reais. Usiminas dropped 3.5 percent to 38.84 reais.

Copel Drops

Copel dropped 6.3 percent to 27.65 reais, the biggest drop in almost five months, leading declines on the Bovespa index.

The company said in a regulatory filing yesterday that it won’t raise rates to consumers due to the global economic slowdown. The decision may reduce earnings before interest, taxes, depreciation and amortization at its distribution operations by as much as half, Banco Santander SA analyst Marcio Prado wrote in a note.

The Bovespa has retreated 3.7 percent this month, paring its gain this year to 36 percent.

“Looking at the long-term, into 2010, everything’s fine and the stocks don’t look too expensive, but some have climbed too quickly on inflows from abroad,” said Januario Hostin Jr., who manages about $30 million at Leme Investimentos in Florianopolis, Brazil.

Foreign Outflows

Foreign investors have bought almost 11 billion reais ($5.6 billion) more in stocks than they sold this year, according to the Web site of exchange owner BM&FBovespa SA. Investors are taking money out of stocks for the first time since January, selling 278 million reais more of stocks than they bought during the first 10 days of June, according to BM&FBovespa SA.

“That should grow as foreign investors put money in their pocket,” Hostin said in a phone interview.

Petrobras slid 2.3 percent to 32.55 reais. Oil prices dropped 0.2 percent to $70.48 a barrel.

Tam SA, Brazil’s biggest airline, fell 1.9 percent to 18.61 reais after domestic demand dropped 13.9 percent in May.

Mexico’s Bolsa index fell for a second day. Banco Compartamos SA paced declines, dropping 6.1 percent to 39.46 pesos, the sharpest drop in over three months. Bank of America Corp. cut the bank that makes loans to the working poor to “neutral” from “buy.” Bank of America analysts cited the stock’s valuation following a recent rally.

Cemex SAB fell to the lowest this month, dropping 6 percent to 12.99 pesos. Bank of America lowered the largest cement maker in the Americas to “underperform,” citing valuation concerns.

The MSCI Emerging Markets Index, a benchmark for equities in 22 developing economies, fell for a third day, slipping 0.7 percent to 764.63.

The extra yield investors demand to own developing nation debt instead of U.S. Treasuries widened 13 basis points, or 0.13 percentage point, to 4.36 percentage points, according to JPMorgan Chase & Co.’s EMBI+ index.

To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; Hugh Collins in Mexico City at Hcollins8@bloomberg.net.

Last Updated: June 16, 2009 17:13 EDT