Bovespa Index Surges to 21-Month High, Real Advances on Industrial Output

The Bovespa stock index climbed to the highest level in 21 months and the real strengthened after Brazil's industrial production grew more than estimated and manufacturing in China expanded at a faster pace in March.

Usinas Siderurgicas de Minas Gerais SA and Gerdau SA gained more than 3 percent, leading steelmakers higher, after industrial output expanded at the quickest rate in four months. Petroleo Brasileiro SA, Brazil's state-controlled oil company, rose for a second day as crude prices climbed. Duratex SA increased 2.6 percent after Deutsche Bank AG recommended buying the maker of panels for the furniture industry.

The Bovespa index rose 1.1 percent to 71,136.34, the highest level since June 2008. The index climbed for a fifth day and erased a drop of as much as 11 percent from a 19-month high on Jan. 6. Forty stocks gained on the index while 21 fell. The real strengthened 1 percent to 1.7646 per dollar.

"We're basically seeing industrial activity rising in all countries, and not only rising but intensifying," said Alvaro Bandeira, director of Rio de Janeiro-based Agora Corretora, Brazil's second-biggest brokerage. "We're seeing an acceleration of activity, which increases investors' propensity for risk-taking a little bit more."

The Bovespa has climbed 3.7 percent this year on signs the global economic recovery is gaining strength. The measure soared 83 percent in 2009, its best performance since 2003, as domestic demand, government stimulus plans and rising prices for Brazil's commodity exports helped pull the economy out of recession faster than most countries. The real has dropped 1.1 percent this year after surging 33 percent in 2009, the best performance among 26 emerging-market currencies tracked by Bloomberg.

Real's Rise

The rebound in economic activity and commodity prices may push the real back to last year's high of about 1.70 per dollar by July, said Ryan Gibbons, a partner at GPS Capital Markets, a Salt Lake City-based foreign exchange advisor to companies.

"If we see a normal operating environment with no major crisis, the currency will make a nice run again," he said in a telephone interview.

Brazil's industrial output increased 1.5 percent in February from January, beating the median estimate of a 1 percent advance by 30 analysts in a Bloomberg survey, and more than a revised 1.2 percent gain in January. Production rose 18.4 percent from a year earlier.

Gerdau, Latin America's biggest steelmaker, rose 3.5 percent to 29.92 reais. Usiminas, Brazil's second-biggest maker of the metal, rose 3.3 percent to 62.90 reais, while third- biggest Cia. Siderurgica Nacional SA added 2.8 percent to 36.65 reais.

Manufacturing Rebound

The Purchasing Managers' Index rose to a seasonally adjusted 55.1 from 52 in February, according to Li & Fung Group, a Hong Kong-based company that releases data for the Federation of Logistics and Purchasing. The figure was in line with the median estimate in a Bloomberg News survey of 13 economists. Readings above 50 indicate expansion.

In the U.S., Brazil's second-largest trade partner, manufacturing grew in March at the fastest pace in more than five years, raising the odds the nation has embarked on a prolonged economic expansion. The Institute for Supply Management's factory index rose to 59.6, the highest level since July 2004 and exceeding the most optimistic forecast in a Bloomberg News survey of 77 economists. Readings greater 50 signal growth.

Japan's largest manufacturers became the least pessimistic about the economy since 2008 as a global rebound drove demand for exports. The Tankan index of sentiment rose to minus 14 in March from minus 25 in December, the fourth straight gain, the Bank of Japan said in Tokyo today.

Commodity Rally

Vale SA, which gets about two thirds of its sales from Asia, rose 0.8 percent to 49.95 reais. Petrobras climbed 1 percent to 35.75 reais. Crude oil surged to a 17-month high on signs that global economic growth is accelerating, bolstering optimism that fuel consumption will increase this year. The Bloomberg Base Metals 3-Month Price Commodity Index increased 0.9 percent.

Duratex added 40 centavos to 15.75 reais. Wood panel prices will likely increase on growing demand and "relatively tight" supply, Josh Milberg, an analyst at Deutsche Bank, wrote in a note. He raised the Sao Paulo-based company to "buy" from "hold."

Index Changes

Banks gained after Banco Santander Brasil SA's $500 million debt sale yesterday capped a record quarter of dollar bond offerings by Brazilian lenders looking to tap into the lowest yields in two years to finance loan growth. The country's banks sold $6.3 billion of bonds in the first three months of 2010, surpassing annual totals in each year since at least 1999, according to data compiled by Bloomberg.

Banco Bradesco SA, Brazil's second-biggest non-government bank, rose 1.2 percent to 33.18 reais, while bigger rival Itau Unibanco Holding SA added 0.5 percent to 39.20 reais.

Santander Brasil, a unit of Spain's biggest bank, sold five-year bonds to yield 2 percentage points above U.S. Treasuries, while Banco ABC Brasil issued $300 million of bonds due in 2020 to yield 4.29 percentage points. Santander Brasil added 1.3 percent to 22.26 reais today.

PDG Realty SA Empreendimentos e Participacoes climbed 4.3 percent to 15.45 reais after exchange owner BM&FBovespa SA said the real estate developer may have its weighting in the Bovespa index increased.

Valuations

Brasil Ecodiesel Industria e Comercio de Biocombustiveis e Oleos Vegetais SA climbed 2.6 percent to 1.19 reais and Agre Empreendimentos Imobiliarios SA rallied 5.2 percent to 7.08 reais, helping lead gains on the IBrX index of the 97 most- traded stocks in Brazil. BM&FBovespa SA said the companies may be added to the Bovespa index next month.

The Bovespa trades for 13.7 times analysts' 2010 earnings estimates, compared with 15.9 times for Mexico's Bolsa and 17.6 times for Chile's Ipsa. The IGBC Index in Colombia is valued at 21.5 times profit estimates, Bloomberg data show. The Bovespa index trades for 17.7 times the reported profits of its companies after fetching 25.5 times in November, the most in almost six years, according to weekly data compiled by Bloomberg.

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

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