Bovespa Stock Index Declines as Job Growth Spurs Interest-Rate Speculation

The Bovespa stock index fell the most in two weeks as steelmakers dropped and a fall in Brazil’s jobless rate spurred speculation policy makers may raise interest rates to cool the economy.

MRV Engenharia e Participacoes SA and B2W Cia. Global do Varejo led a decline for homebuilders and retailers as unemployment unexpectedly fell in July to 6.9 percent. Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-biggest steelmaker, dropped as analysts at Banco Santander SA said prices won’t keep up with the rising costs of iron ore and coal.

“Unemployment lower than 7 percent makes people more concerned about interest rates in the future,” said Joao Pedro Brugger, who helps oversee 70 million reais ($39.7 million) at Leme Investimentos in Florianopolis, Brazil. “There’s still concern about the recovery, particularly in the U.S.”

The Bovespa stock index dropped 1.4 percent to 63,867.48, the most since Aug. 11. The BM&FBovespa Small Cap index slipped 0.9 percent to 1,256.36. The real rose 0.1 percent to 1.7620 per dollar.

Traders increased bets for higher borrowing costs, pushing the yield on interest-rate futures contracts due January 2012 up 10 basis points, or 0.1 percentage point, to 11.35 percent.

Unemployment Declines

Unemployment fell from 7 percent in June, the national statistics office said today in Rio de Janeiro. Economists had estimated a rate of 7 percent for July, according to the median forecast of 31 analysts surveyed by Bloomberg.

MRV fell 4.2 percent to 14.33 reais. B2W Varejo dropped 2.6 percent to 28.20 reais. Rossi Residencial SA, Brazil’s sixth- biggest homebuilder by revenue, declined 3.9 percent to 14.90 reais. PDG Realty SA Empreendimentos & Participacoes, Brazil’s third-biggest homebuilder by revenue, sank 2.1 percent to 17.96 reais.

Usiminas fell 3.3 percent to 43.91 reais. Cia. Siderurgica Nacional SA, Brazil’s third-biggest steelmaker, dropped 1.1 percent to 26.90 reais. Gerdau SA, Latin America’s biggest steelmaker, declined 2.1 percent to 22.97 reais.

“Local investors are pessimistic about the steel sector, especially the flat steel segment due to expected poor earnings momentum in the coming quarters, and they are simply not excited about long steel, also due to weak forecast quarterly results and a lack of positive triggers,” wrote analysts at Santander in a note to investors. “We agree with the perception of local investors.”

Government Bonds

Brazil banks from Banco do Brasil SA to Itau Unibanco Holding SA are reducing government bonds to a record and increasing lending to consumers and companies.

Bonds dropped to 22.7 percent of assets at Brazil’s 15 biggest lenders in June from 33.7 percent five years ago, according to Austin Rating, a Sao Paulo-based research group specializing in financial data. Loans climbed to 36.3 percent of investments from 30 percent in 2005 as easing inflation spurred the central bank to cut its benchmark interest rate to the lowest ever and economic growth accelerated.

The Bovespa index trades for 12.6 times analysts’ 2010 earnings estimates, compared with 12 times for the MSCI Emerging Markets Index of 21 developing nations’ stocks and 16.5 times for Mexico’s IPC index, according to weekly data compiled by Bloomberg. The Bovespa trades at 14.7 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 Ragir in Rio de Janeiro at aragir@bloomberg.net.

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