Aug. 27 (Bloomberg) -- Brazilian stocks gained for the first time in four days as drop in wholesale prices in two years boosted retailers and banks while rising commodity prices sent energy and steel producers higher.

Lojas Americanas SA and Banco do Brasil SA paced advances for retail and bank stocks after Brazil's broadest inflation index dropped in August more than economists expected. Petroleo Brasileiro SA and Gerdau SA gained as oil and metal prices jumped and Citigroup Inc. recommended investors buy commodity producers, banks and consumer companies as economic growth quickens.

``We're reaching a point where people are re-evaluating whether the scenario out there is so bad,'' said Jose Oliveira, who oversees the equivalent of $49 billion as chief executive of BNY Mellon Arx in Rio de Janeiro. ``Investors are looking at the domestic market still doing well, with lower inflation.''

The Bovespa index rose 497.59, or 0.9 percent, to 54,856.29 at 1:33 p.m. New York time. The MSCI Latin America index gained 2 percent. Mexico's Bolsa gained 0.8 percent. Chile's Ipsa advanced 0.7 percent.

Investors should buy financial and consumer stocks in Brazil because the economy is growing and inflation expectations ``have peaked,'' Citigroup Inc. strategists said.

``It is time to turn aggressive on domestic sector strategy in Brazil,'' wrote Latin American Strategist Geoffrey Dennis in a note to clients. ``The domestic economy is strong.''

Consumer, construction and wholesale prices, as measured by the IGP-M price index, decreased 0.32 percent, more than all estimates, and the 0.20 percent median forecast in a Bloomberg survey of 28 analysts, the Rio de Janeiro-based Getulio Vargas Foundation said today.

Banks Upgraded

Banco do Brasil gained 2.7 percent to 22.80 reais. Lojas Americanas rose 1.5 percent to 10.24 reais. Citigroup's Dennis raised his rating on Brazilian banks to ``overweight' from ``underweight' and upgraded consumer companies reliant on discretionary spending to ``neutral'' from ``underweight.''

Lojas Renner SA, Brazil's biggest publicly traded clothing retailer, rose 2.3 percent to 29.97 reais.

Citigroup also reiterated its ``overweight'' rating on raw material producers.

Gerdau, Latin America's largest steelmaker, climbed 1.2 percent to 29.35 reais. BNY's Oliveira said he favors steelmakers because supply constraints and strong demand will keep prices high.

Lead rose 11 percent on the London Metal Exchange as industry and investors took advantage of recent declines to buy at cheaper prices. Nickel gained 4.1 percent in London.

Cia. Vale do Rio Doce, the world's biggest iron ore and nickel miner, gained 1.7 percent to 37.62 reais.

Oil Jumps

Petrobras jumped 2.1 percent to 34.90 reais. Crude oil for October delivery increased $1.19, or 1 percent, to $117.46 a barrel on the New York Mercantile Exchange.

Net Servicos de Comunicacao SA, Brazil's biggest cable-TV company, gained 1.2 percent to 18.08 reais on speculation it may be able to continue charging for extra customer connections.

The antitrust agency of Brazil's Finance Ministry defended companies' right to charge extra fees for additional connections to cable networks, Raymond James & Associates Inc. analyst Alexandre Garcia wrote in a note.

In Mexico, the Bolsa index rose for the first time in three days, led by Alsea SAB, the operator of Starbucks Coffee franchises in Mexico and Argentina.

Starbucks Corp. expects store growth of 75 percent in Latin America next year, Mexico City-based newspaper Excelsior reported, citing the company's head for the region. Alsea rose 1 percent to 11 pesos.

Movil Gains

America Movil SAB, Latin America's largest mobile phone company, gained 2.3 percent to 26.07 reais. The company may be interested in buying an Indian wireless company, which ``could be a positive,'' JPMorgan Chase & Co. wrote in a research note. The Times of India said America Movil has approached Datacom, which has a mobile-phone license there, about buying a stake.

Elsewhere in Latin America, Argentina's Merval index rose 1.1 percent, Colombia's IGBC dropped 0.6 percent and Peru's Lima General Index fell 3.4 percent.

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

Last Updated: August 27, 2008 14:26 EDT