Feb. 17 (Bloomberg) -- Brazilian stocks dropped the most in a month on concern a deepening global recession will stifle demand for the country’s oil and raw-material exports.

Petroleo Brasileiro SA and Cia. Vale do Rio Doce, Brazil’s biggest commodity producers, fell more than 5 percent as oil and metals prices tumbled on signs of a worsening U.S. slowdown. Gerdau SA and Usinas Siderurgicas de Minas Gerais SA, the country’s largest steelmakers, declined after Deutsche Bank AG said distributors will deplete inventories amid a slump in demand. Uniao de Bancos Brasileiros SA retreated 5.7 percent as banks around the world tumbled on speculation of greater losses.

“The situation in Europe and in the U.S. is dim and it makes it hard to be optimistic on Brazil,” said Joao Pedro Themudo, whose Imperial FI Multimercado hedge fund beat 94 percent of its peers last year and rose 21 percent. “The real concern is economic growth.”

The Bovespa Index sank 4.8 percent to 39,846.97, the biggest drop since Jan. 12. Chile’s Ipsa retreated 1.5 percent, while Mexico’s Bolsa declined 3.4 percent.

Latin American markets joined a global slump in equities as signs of a deepening recession mounted. The MSCI Emerging Markets Index fell the most in almost three months, losing 4.9 percent. The MSCI World Index of developed-nation stocks sank 4.1 percent.

Petrobras, as the Rio de Janeiro-based company is known, lost 1.52 reais to 26.40 reais, the steepest drop in a month. Crude oil slumped 6.9 percent, falling below $35 a barrel, after a report showed manufacturing in New York tumbled to the lowest level since records began in 2001.

Vale, Gerdau

Vale dropped 1.86 reais to 29.06 reais. The Bloomberg Base Metals 3-Month Commodity Price Index retreated 2.9 percent.

Gerdau decreased 5.4 percent to 14.90 reais. Steel inventories in the Americas are likely to fall another 7 percent to 10 percent from December levels as distributors delay restocking, Deutsche Bank analysts David S. Martin and Jorge Beristain wrote in a note today, citing a survey of distributors.

Usiminas fell 4.5 percent to 27.45 reais. Cia. Siderurgica Nacional SA, Brazil’s third-largest steelmaker, sank 4.4 percent to 35.86 reais.

Pulp and paper producers Aracruz Celulose SA and Votorantim Celulose & Papel SA fell on concern global capacity exceeds demand. Memphis, Tennessee-based International Paper Co., the world’s largest pulp and paper maker, said today it will close a mill in Inverurie, Scotland, by the end of March, removing 250,000 tons of uncoated paper capacity from the company’s European operations.

Aracruz, the world’s largest producer of eucalyptus pulp, dropped 5.8 percent to 1.78 reais. VCP, which agreed to buy a controlling stake in Aracruz, lost 6.1 percent to 12.65 reais.

Bank Shares

The MSCI Brazil Financials Index tumbled 6.8 percent. Unibanco, being bought by Banco Itau Holding Financeira SA, fell 82 centavos to 13.53 reais. Itau, which will become Latin America’s biggest financial services company after the takeover, declined 5.9 percent to 23.90 reais.

Financial companies dropped in Europe and Asia after Moody’s Investors Service said it might downgrade lenders with units in Eastern Europe and the cost for South Korean banks to borrow dollars rose to a record.

Banco do Brasil SA, Latin America’s biggest state-controlled bank, retreated 3.5 percent, while Banco Bradesco SA, the second- biggest non-state bank, lost 4 percent.

The BM&FBovespa MidLarge Cap Index decreased 4.8 percent. The BM&FBovespa SmallCap Index slumped 3.3 percent.

Yearly Advance

The declines pared the Bovespa’s gain this year to 6.1 percent. The gauge still is among the five best-performing stock benchmarks in the world on speculation government efforts to support growth and falling interest rates will help the economy expand and increase demand for equity.

Mexico’s’ Bolsa fell to the lowest since Nov. 21, led by Cemex SAB and Coca-Cola Femsa SAB. Cola-Cola Femsa, Latin America’s largest soft-drink producer, is facing competition from discount supermarket brands in Mexico as consumer confidence falls in a faltering economy, said Marisol Huerta, an analyst with Actinver SA. The shares fell 13 percent.

Cemex sank 11 percent to 10.50 pesos. The largest cement maker in the Americas declined as the Mexican peso weakened against the dollar, driving up the cost of servicing Cemex’s dollar-denominated debt.

Chile’s Ipsa declined the most in a week, dragged down by fertilizer producer Sociedad Quimica y Minera de Chile SA.

Soquimich fell 5.6 percent to 17,301 pesos. Declines in global crop and energy prices signaled lower demand for the crop nutrients that Santiago-based Soquimich produces.

To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.

Last Updated: February 17, 2009 16:57 EST