July 15 (Bloomberg) -- Brazilian stocks surged the most in almost two months as oil and metal producers rallied on signs global manufacturing is stabilizing and consumer shares gained on speculation of a recovery in Latin America’s biggest economy.

Vale SA, the world’s biggest iron ore miner, jumped more than 8 percent after Bank of America Corp. upgraded the stock on valuations and higher ore prices. Tam SA and Gol Linhas Aereas Inteligentes SA, Brazil’s two biggest airlines, rose more than 7 percent on speculation demand will increase. Cyrela Brazil Realty SA Empreendimentos & Participacoes, Brazil’s biggest homebuilder, led gains in the industry after rival MRV Engenharia & Participacoes SA posted record contracted sales.

“Commodities are strong and currencies are going up against the dollar,” said Eric Conrads, a Mexico City-based hedge fund manager at ING Investment Management SA, which manages about $12 billion in emerging market assets. “You have all the ingredients for a rally today.”

The Bovespa stock index climbed 5 percent to 51,296.66, rebounding from a two-month low. Only two stocks on the 64- member index fell. The BM&FBovespa Small Cap index added 3.2 percent. The Brazilian real climbed 1.5 percent against the dollar, the most in almost three weeks.

In other Latin American markets, Mexico’s Bolsa gained 4.1 percent and Chile’s Ipsa rose 1.9 percent. The MSCI Emerging Markets Index increased 4 percent, the most in more than 10 weeks.

Industrial production in the U.S., the world’s biggest economy, had the smallest decline in eight months, the Federal Reserve said today. A New York regional factory gauge showed the smallest contraction in more than a year.

Vale Upgrade

Vale surged the most in 10 weeks, adding 8.3 percent to 30.17 reais, after it was raised to “buy” from “neutral” at Bank of America.

“Since March, the stock has been a big underperformer and we now believe investors are overly pessimistic on the name,” analysts led by Felipe Hirai wrote. “Vale’s current share price is not reflecting a stronger iron ore market scenario.”

The Bloomberg Base Metals 3-Month Price Commodity Index gained 3.5 percent to 156.86. Crude oil rose 3.4 percent, the most in three weeks, after a government report showed a bigger- than-forecast drop in U.S. crude inventories as refineries increased operating rates.

Petroleo Brasileiro SA, Brazil’s state-controlled oil producer and biggest stock, added 4 percent to 30.76 reais.

Airline Rally

Tam, Brazil’s largest airline, added 7.7 percent to 23.85 reais. Gol, the second-biggest, surged 8 percent to 13.50 reais. Both stocks have gained more than 17 percent in the past week.

Data from the civil aviation agency yesterday showed Brazil air travel expanded 7.5 percent in June from a year earlier, the biggest increase since September.

“The industry has already hit the bottom of the well in international and domestic demand,” Victor Mizusaki, an analyst at Itau Corretora in Sao Paulo, said in a phone interview today.

MRV gained 2.7 percent to 29.79 reais after it said contracted sales jumped to a record in the second quarter. Credit Suisse Group AG reinstated coverage of the builder of homes for low-income families with an “outperform” rating, saying that the “strong” presales reinforces the industry’s “solid” fundamentals.

Cyrela jumped 7.9 percent to 15.79 reais.

Ambev Advance

Cia. de Bebidas das Americas gained 4.4 percent to 131.79 reais as Deutsche Bank AG said hotter weather sparked by the El Nino weather pattern will lead people to guzzle more beer.

The Bovespa has gained 37 percent in 2009 on speculation a rebound in commodity prices and falling interest rates will bolster economic growth. The measure had tumbled 10 percent from this year’s high on June 1 through yesterday on speculation the global recession will be prolonged, reducing commodity demand.

Grupo Elektra SA, the Mexican electronics retailer controlled by billionaire Ricardo Salinas, led the advance in the Bolsa index after Intel Corp. forecast sales that beat analysts’ estimates. The stock jumped 7.9 percent.

Grupo Financiero Banorte, Mexico’s largest publicly traded lender, rose 5.1 percent to 36.06 pesos. Mexico’s central bank is expected to cut interest rates by 25 basis points on July 17.

The Bolsa is tracking the rise of U.S. stocks, which had fallen “too much too quickly,” Guilherme Paiva, Deutsche Bank’s Latin American equity strategist, said in an e-mail. “Plus, it looks like Intel figures were driven by top-line growth rather than cost cutting,” he said.

The Bolsa has gained 50 percent since its March 2 low on signs that the worst of the recession is over.

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

Last Updated: July 15, 2009 16:54 EDT