Brazil's Bovespa Index Declines on Rate Speculation, U.S. Retail Sales

Brazil’s Bovespa stock index fell after quickening inflation prompted traders to raise bets for interest rate increases and sales at U.S. retailers unexpectedly dropped.

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, declined 1.5 percent as crude retreated. Credit card processor Cielo SA led declines for stocks that benefit from lower borrowing costs.

The Bovespa slid 0.9 percent to 62,478.07 at 9:31 a.m. New York time, paring this week’s gain to 1.7 percent. Five stocks fell for every one that rose. The BM&FBovespa Small Cap index slipped 0.1 percent to 1,110.43. The real weakened 0.3 percent to 1.8107 per dollar.

“The U.S. numbers are bringing about more skepticism,” said Joao Pedro Brugger, a money manager at Leme Investimentos Ltda in Florianopolis, which has about 60 million reais in assets. “The IGP-M came in well above what people were expecting. The economic growth is really affecting prices.”

The main Brazil stock gauge rallied the most in two weeks yesterday and the real strengthened as reports from China and Japan showed economic growth is accelerating, easing concern Europe’s debt crisis will stall the recovery.

The nation’s statistics agency reported today that the first preview of Brazil’s broadest measure of inflation, the IGP-M index, rose 2.21 percent from last month, the highest reading since 2003 and more than the 0.82 percent median estimate of 15 economists surveyed by Bloomberg. In the interest rate futures market, contracts due January 2011 rose four basis points, or 0.04 percent, to 11.14 percent.

Higher Rates

The central bank this week raised the benchmark Selic rate 0.75 percentage point, the second consecutive increase of that amount, to 10.25 percent.

The IGP-M price index should end the year at 10 percent, Itau Unibanco Holding SA’s chief economist Ilan Goldfajn said.

Goldfajn, in an interview at a conference in Sao Paulo sponsored by Bloomberg News Portuguese language service, said the rise in the index, which is 60 percent weighted in wholesale prices, may not be reflected in the benchmark IPCA index of consumer prices.

Sales at U.S. retailers unexpectedly dropped in May, signaling consumers boosted savings as employment slowed and stocks fell.

Purchases decreased 1.2 percent, the biggest drop since September 2009, following a 0.6 percent April gain that was larger than previously estimated, Commerce Department figures showed today.

Investors should buy Brazilian stocks because the nation’s economic and earnings outlook is improving and the Bovespa sank 12 percent from its April high, according to Itau Unibanco Holding SA.

The Bovespa fell from its April 8 high on concern rising interest rates will curb consumer demand and sovereign debt problems in Europe will slow global economic growth. The gauge fell to 13 times reported earnings, near the lowest in more than a year, according to weekly data compiled by Bloomberg.

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

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