Oct. 26 (Bloomberg) -- Brazil’s Bovespa index rose, recovering after the first weekly loss in a month, as analysts increased their economic growth forecasts and Goldman Sachs Group Inc. said it was “hazardous” to be underweight shares.

Gol Linhas Aereas Inteligentes SA and All America Latina Logistica led gains for airlines and other transportation companies after economists in a central bank survey boosted growth estimates this year to 0.18 percent. Vale SA, Brazil’s second-biggest company by market value, rose 1.2 percent after Goldman Sachs said the Bovespa index may rally to 85,000 next year. Cia. Siderurgica Nacional SA led a drop for steelmakers, limiting gains, as commodity prices fell on a rising dollar.

The Bovespa index increased 26.71 points, or less than 0.1 percent, to 65,085.55. The gauge fell 1.7 percent last week after the government imposed a 2 percent tax on foreign purchases of equities in an effort to stem a gain in the nation’s currency. The BM&FBovespa Small Cap Index slipped 0.3 percent after a 2.5 percent slide last week.

“We haven’t seen too much people saying that the inflows have been unjustified,” said Saulo Sabba, who oversees the equivalent of $245 million at Maxima Asset Management in Rio de Janeiro. “There’s not too many places in the world with growth prospects like Brazil.”

In other Latin American markets, Mexico’s Bolsa index slipped 1.1 percent, and Chile’s Ipsa lost 0.5 percent. The MSCI Emerging Markets Index retreated 0.2 percent.

Brazil Economy

Economists forecast that Brazil’s gross domestic product will expand 4.8 percent next year after growing 0.18 percent in 2009, according to the median forecast in an Oct. 23 central bank survey of about 100 analysts published today. A week earlier, they estimated GDP would expand 0.12 percent this year.

Gol, the second-biggest Brazilian airline, rose 4.9 percent to 19.69 reais. All, a Brazilian freight transport company, gained 2.2 percent to 12.93 reais.

Vale climbed 51 centavos to 41.51 reais. Brazilian stock valuations are “still low” even after a 73 percent jump in the Bovespa this year, Goldman Sachs said in a report today.

“Forward valuations suggest it is hazardous to be underweight Brazil,” Stephen Graham, a Sao Paulo-based analyst, wrote in a note to clients. “Brazilian sovereign risk and interest rates are at or near record lows, while prospects for sustainable economic growth are possibly better than at any period in the last few decades.”

The index trades at 16.5 times estimated earnings, compared with 17.16 times for the MSCI Latin America Index, according to Bloomberg data.

Commodity Drop

CSN, as the steelmaker is known, fell 2.2 percent to 61.60 reais. Gerdau SA, Latin America’s largest steelmaker, declined 0.7 percent to 28.62 reais. Copper prices dropped from the highest level in almost 13 months as the dollar rose, curbing demand from investors who buy commodities as a hedge against inflation. The Bloomberg Base Metals 3-Month Price Commodity Index slipped 1.1 percent.

“Commodity prices have reached historic highs in the last few months, so investors are just taking a breath to see what next’s year demand will be,” said Jose Arturo Tobias, a Latin American equities strategist at Bulltick Capital in Mexico City.

Trading in Brazilian stocks and derivatives was halted for about an hour starting at 9:57 a.m. New York time because of technical problems, according to BM&FBovespa SA. Trading won’t be extended to make up for the suspension, the exchange said in an e-mailed statement.

BM&FBovespa slipped 1.6 percent to 12.05 reais.

Mexico Stocks

U.S. stocks slid on concern lawmakers will phase out a tax credit for homebuyers and Bank of America Corp. will have to sell shares to pay back its government bailout. The Standard & Poor’s 500 Index dropped 1.2 percent.

Mexico’s Bolsa index declined for a fourth day as construction companies and metals slumped along with the Dow Jones Industrial Average, according to Gerardo Roman, head of trading at Mexico City-based Actinver SA.

“Everything was fine until the Dow turned and started to fall,” Roman said.

Empresas ICA SAB, Mexico’s largest construction company, lost 3.4 percent to 32.85 pesos. Industrias CH SAB, Mexico’s largest steelmaker, declined 4.1 percent to 43.82 pesos. Its unit Grupo Simec SAB lost 3.2 percent to 35.32 pesos.

Cemex SAB dropped 5.1 percent to 15.76 pesos. The world’s third-largest cement maker retreated amid concern that its third-quarter earnings report due this week will be “weak,” said Patricio Rivera, an analyst with Ixe Grupo Financiero in Mexico City.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; Emily Schmall in Mexico City at eschmall@bloomberg.net

Last Updated: October 26, 2009 18:27 EDT