Bovespa Stock Index Declines on Petrobras Offering Concern, U.S. Economy

The Bovespa stock index fell, halting a five-day advance, on speculation the state oil company may delay a planned $25 billion equity offering and growth is slowing in the U.S., Brazil’s second-biggest trade partner.

Petroleo Brasileiro SA sank after Valor Economico newspaper said the share sale planned for next month may be delayed until 2011. Gerdau SA, Latin America’s largest steelmaker, fell the most in a week as U.S. manufacturing date dimmed the outlook for steel demand. Light SA, Brazil’s second-biggest electricity distributor, led declines among utilities on speculation slowing inflation may diminish the potential for price increases.

The Bovespa dropped 0.9 percent 67,054.25 at 11:07 a.m. New York time. Fifty-three stocks declined on the measure while 11 gained. The real weakened 0.6 percent to 1.7637 per dollar.

“Everyone is keeping a cautious outlook on Petrobras,” said Eduardo Favrin, who oversees about $2.5 billion as head of equities for HSBC Global Asset Management’s Brazil unit in Sao Paulo. “You have a lot of unofficial information, but if the offering really is delayed, it’ll bad for the market because that uncertainty continues.”

Petrobras Chief Executive Officer Jose Sergio Gabrielli, President Luiz Inacio Lula da Silva, Finance Minister Guido Mantega and Energy Minister Marcio Zimmermann failed to reach an agreement yesterday on when to hold the company’s planned stock offering, Valor reported, without saying how it got the information. Elections in October and the earnings release period in November will likely lead the company to hold the sale next year if a date is not set for next month, Valor said.

Separately, O Estado de S. Paulo reported that Brazil’s government may price reserves in a planned oil-for-stock swap at a price higher than Petrobras is seeking.

Valuations

The Brazilian government may price so-called pre-salt crude reserves in a planned swap at $10 to $12 per barrel, while Petrobras seeks to pay $5 to $6 per barrel, daily Estado reported, without saying how it got the information. Gaffney, Cline & Associates, a consulting company hired by the National Petroleum Regulator, will deliver its final report on the price of the reserves today, the newspaper said.

In the U.S., jobless claims unexpectedly increased to the highest level since November and an index of Philadelphia-area manufacturing fell.

Initial jobless claims rose by 12,000 to 500,000 in the week ended Aug. 14, above economists’ estimates of 478,000. The Federal Reserve Bank of Philadelphia’s general economic index dropped to minus 7.7 in August from 5.1 in July, signaling the manufacturing rebound is slowing. Economists forecast the measure would rise to 7, according to the median of 58 projections in a Bloomberg News survey.

Rate Futures

Petrobras slid 1.8 percent to 27.18 reais, the lowest price in a month. Gerdau fell the most in a week, dropping 1.8 percent to 24.23 reais.

Light declined 1.7 percent to 21.78 reais. Yields on Brazil’s interest-rate futures contracts fell to a four-month low amid speculation third-quarter inflation will drop below the central bank’s forecast, reducing the need to raise borrowing costs. The yield on the contract due in January dropped four basis points, or 0.04 percentage point, to 10.69 percent.

The Bovespa index trades for 12.8 times analysts’ 2010 earnings estimates, compared with 11.9 times for the MSCI Emerging Markets Index of 21 developing nations’ stocks and 16.3 times for Mexico’s IPC index, according to weekly data compiled by Bloomberg. The Bovespa trades at 14.9 times the reported profits of its companies after fetching 25.5 times in November, the most in almost six years, weekly data show.

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

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