July 13 (Bloomberg) -- Brazilian stocks slipped as concern a drop in commodities prices will hurt earnings overshadowed advances for consumer stocks.

Usinas Siderurgicas de Minas Gerais SA led the drop on the benchmark index after Goldman Sachs Group Inc. said Brazil’s second-largest steelmaker may report second-quarter earnings that are weaker than analysts’ forecast. Light SA, Brazil’s second-biggest electricity distributor, fell the most in almost four months as investors sold shares before a secondary offering this week. Declines were limited as consumer stocks rose, led by Redecard SA, after Citigroup Inc. advised adding to Brazilian companies that benefit from consumer demand.

“It looks like the correction may have been sufficient to give breathing room for the market,” said Januario Hostin Jr., who oversees about 60 million reais at Leme Investimentos in Florianopolis, Brazil.

The Bovespa index fell 0.1 percent to 49,186.93. The gauge has dropped 9.7 percent from its June 1 high, paring a 31 percent gain this year on speculation falling interest rates will bolster economic growth.

Among other Latin American markets, Mexico’s Bolsa rose 1.3 percent, Chile’s Ipsa advanced 1.5 percent and Argentina’s Merval jumped 4.8 percent.

The Bovespa fluctuated between gains and losses today before the start of second-quarter earnings season. Brazilian companies that account for more than half the benchmark index may say second-quarter profit worsened as commodities prices fell, economic growth slowed and costs rose, according to Citigroup. Profit probably dropped or losses widened for 33 out of 50 Brazilian companies tracked by Citigroup.

Economic Outlook

The Bovespa index trades at 19.73 times reported earnings, more than twice the price-to-earnings ratio of 9.03 it fetched in the beginning of the year, as emerging markets stocks surged. The last time stocks in developing countries got this expensive was in October 2007, just before the MSCI Emerging Markets Index began a 12-month tumble that erased half its value.

Economists predict gross domestic product will shrink 0.34 percent in 2009, compared with a forecast for a 0.50 percent drop a week earlier, according to the median forecast in a July 10 central bank survey of about 100 economists published today.

Usiminas dropped 5.5 percent to 35.51 reais. The steelmaker may post profit of 77 centavos a share, less than a previous forecast of 92 centavos, analysts led by Marcelo Aguiar said in a note to clients. Goldman lowered its estimate amid falling steel prices and because Usiminas sold steel from inventories produced when raw-material costs were higher.

Light slid 5.9 percent to 25.05 reais as investors sold shares on bets they can be repurchased at a lower price after the company’s secondary offering this week.

Redecard rose 95 centavos to 27.84 reais.

‘More Beta to Brazil’

“We add more beta to Brazil,” wrote Citigroup Latin America strategist Geoffrey Dennis in a note to clients. “There are clearer signs of a trough in 2009 earnings per share forecasts in Brazil as commodity prices exceed full year forecasts and the economy rebounds than in Mexico where the economy continues to contract.”

The 12 percent drop in Latin American stocks since June “significantly improves the risk-reward opportunity in regional equities for the rest of 2009,” Dennis wrote. “We expect markets to break out to the upside from their current range later this summer.”

Brazilian consumer discretionary companies were raised to “overweight” from “neutral” at Citigroup, while energy and phone companies were upgraded to “neutral” from “underweight.”

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

Last Updated: July 13, 2009 17:07 EDT