Oct. 30 (Bloomberg) -- Brazilian stocks fell, capping the biggest weekly drop in eight months, as commodities declined and Empresa Brasileira de Aeronautica SA and Tim Participacoes SA reported third-quarter results that disappointed investors.

Petroleo Brasileiro SA lost 2.8 percent as oil prices fell on a report of slower U.S. consumer spending. Embraer, as the world’s fourth-largest plane maker is known, dropped 11 percent after its earnings spurred downgrades by Credit Suisse Group AG and JPMorgan Chase & Co. Tim led declines in the Bovespa index after sales fell more than analysts estimated. Exchange owner BM&FBovespa SA extended its retreat this week to 6.9 percent after the government’s tax on foreign purchases of equity.

“The market is going to have a tough end of year,” said Robert Froehlich, senior managing director at Hartford Financial Services Group. “Valuations are high and you have this tax that will hurt the market and hurt volumes.”

The Bovespa index dropped 3.4 percent to 61,545.50. The BM&FBovespa SmallCap Index lost 2.2 percent. The real weakened 1.6 percent to 1.7612 per U.S. dollar. Chile’s Ipsa index fell 1.7 percent, while Mexico’s Bolsa retreated 2.1 percent.

The Bovespa lost 5.4 percent in the past five days, the most since February. It entered a so-called correction on Oct. 28, defined as a drop of at least 10 percent from a high, after the government imposed the 2 percent tax to stem gains in the real. The slump pared a monthly gain to less than 0.1 percent.

Vanguard Boosts Fees

Vanguard Group Inc. doubled the purchase fee to 0.5 percent from 0.25 percent on its Vanguard Emerging Markets Stock Index Fund because of the tax, according to a statement published on the company’s Web site.

“It is clearly a deterrent to investing in Brazil,” said Froehlich, declining to comment on Vanguard’s higher fees. His firm oversees $352 billion, including emerging-market stocks.

U.S. consumer spending fell 0.5 percent in September, the first drop in five months, and a gauge of confidence weakened, signaling consumers will make a limited contribution to the recovery without government incentives. The reports followed data yesterday showing the world’s biggest economy grew 3.5 percent in the third quarter, more than analysts estimated.

“Data coming out about the U.S. economy isn’t shining much light on what’s going to happen to the U.S. consumer in the fourth quarter, and that leads to uncertainty about whether inflows to Brazil will continue,” said Rogerio Freitas, a fund manager at Teorica Investimentos in Rio de Janeiro.

Petrobras, as the oil producer is known, fell 2.8 percent to 35.04 reais. Oil decreased the most in a month after the U.S. reports raised concern about growth in the biggest fuel- consuming country. The Reuters/Jefferies CRB Index of 19 raw materials dropped 2.1 percent.

Embraer, Tim

Embraer tumbled 1.06 real to 8.94 reais, the lowest price since July. The company posted a third-quarter profit of $57.7 million, or 32 cents per American depositary share, under U.S. accounting standards. Analysts surveyed by Bloomberg had an average estimate for earnings of 47 cents a share. The company forecasts a 10 percent drop in sales next year compared with 2009, it said in a regulatory filing today.

Luiz Otavio Campos, a Sao Paulo-based Credit Suisse analyst, said third-quarter earnings were “disappointing from top to bottom.” He cut the shares to “underperform” from “neutral.” JPMorgan lowered its rating to “neutral” from “overweight.”

Tim, the Brazilian unit of Italy’s biggest telephone company, lost 11 percent to 5.50 reais.

Emerging Markets Drop

Third-quarter net revenue fell 2 percent to 3.34 billion reais from 3.41 billion reais a year earlier, Tim said in a regulatory filing today. Earnings before interest, taxes, depreciation and amortization dropped 5 percent to 758.8 million reais, less than the average estimate of 797.5 million reais from eight analysts compiled by Bloomberg.

The MSCI Emerging Markets Index lost 1.1 percent. The 22- country gauge tumbled 5.8 percent this week, the most since February.

“Emerging markets have had a tremendous rally, and I think there’s some fear that at least some of that needs to be digested, corrected a little bit,” said Uri Landesman, who oversees around $2 billion at ING Investment Management Inc., in a phone interview. “People are nervous. This week, the mood seems to be, hey, we’ve made a lot of money, let’s book some of the profits.”

To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.

Last Updated: October 30, 2009 17:08 EDT