Bovespa Falls Most in Five Months on Inflation, European Debt

The Bovespa index dropped the most in five months as rising Italian bond yields stoked concern Europe’s sovereign-debt crisis is deepening and economists covering Brazil’s economy increased their inflation forecasts.

Miner Vale SA (VALE3) slid after saying it won’t boost its offer for the African copper company Metorex Ltd. (MTX) Oil companies Petroleo Brasileiro SA (PETR4) and OGX Petroleo & Gas Participacoes SA tumbled as crude prices fell. Fibria Celulose SA, the world’s largest pulp producer, declined after the stock was cut to “hold” from “buy” at Deutsche Bank AG.

The Bovespa index dropped 2.1 percent to 60,223.63 at the close of Sao Paulo trading at 4:15 p.m. New York time, the most since Feb 9. Fifty-eight stocks fell on the index, while eight rose. The real weakened 0.9 percent to 1.5774 per U.S. dollar.

“After Greece, the focus is now on Italy,” Felipe Casotti, who helps manage 1.2 billion reais ($756 million) at Maxima Asset Management in Rio de Janeiro, said in a telephone interview. “Soon, it’ll be on another country, maybe Spain. It doesn’t look like this crisis will be solved anytime soon.”

Stocks around the world tumbled as concern mounted that Europe’s debt crisis will spread, dimming the outlook for global growth. Italy’s FTSE MIB Index plunged the most in more than a year, entering a bear market as its slide from this year’s high exceeded 20 percent.

Ten-year Italian yields soared to the highest in 10 years. The spreads investors demand to hold Italian, Portuguese and Spanish debt over German bunds widened to euro-era records.

Bailout Funds

A European bailout fund may have to be doubled to 1.5 trillion euros ($2.1 trillion) to cover a crisis in Italy, according to the European Central Bank, German newspaper Die Welt reported, citing unidentified “high-ranking” people.

German Finance Minister Wolfgang Schaeuble denied the report. “No, there can be no talk of that,” he told reporters in Brussels today before a meeting of euro-area finance ministers.

Consumer prices in Brazil will rise 6.31 percent this year, according to the median forecast in a July 8 central bank survey of about 100 economists published today. The figure was up from 6.15 percent the previous week.

Economists also raised their projection for 2012 inflation. Prices, as measured by the IPCA index, will rise 5.20 percent next year, the survey found, from a forecast of 5.10 percent the previous week.

Brazil’s central bank is set to preside over the longest streak of consecutive interest-rate increases since 2005 in a bid to slow inflation, trading in futures contracts shows.

Rate Outlook

Yields on interest-rate futures contracts due in October rose five basis points, or 0.05 percentage point, last week to 12.41 percent, suggesting the central bank will lift the benchmark Selic rate 25 basis points at its policy meetings in July and August, from 12.25 percent. That would extend the stretch of increases to six.

Oil declined for a second day in New York on speculation that a slump in Chinese imports and rising unemployment in the U.S. may indicate fuel demand will falter in the world’s biggest crude-consuming nations.

Petrobras, as Petroleo Brasileiro is known, tumbled 1.2 percent to 23.15 reais. OGX declined 3 percent to 14.37 reais.

Fibria plunged 4.1 percent to 19.10 reais.

Vale dropped 1.1 percent to 45.61 reais. The company will withdraw its offer to buy Metorex, according to a filing to Brazil’s securities regulator today, paving the way for a rival $1.36 billion bid from China’s Jinchuan Group Co. to win control of the African copper company.

Electricity Companies

Cia. Energetica de Minas Gerais, the state-controlled electricity utility serving Minas Gerais state, known as Cemig, fell 1 percent to 30.50 reais. Cemig’s unit Light SA (LIGT3), a Rio de Janeiro-based energy distributor, may isssue 350 million reais in local bonds to finance the purchase of renewable energy company Renova Energia SA (RNEW11), Chief Financial Officer Luiz Fernando Rolla said on the sidelines of an event in Sao Paulo today.

Emerging-markets stocks are likely to rise less than previously forecast this year as weaker sentiment means that developing-nation equities may be unable to achieve a “clear valuation premium,” Citigroup Inc. said in a note written by analysts led by New York-based Geoffrey Dennis.

Citigroup cut its rating on Brazilian stocks to “neutral” and lowered Poland to “underweight,” according to the report. The brokerage raised Indonesia, Thailand and Turkey to “neutral.”

Index Valuation

The Bovespa trades at 9.9 times analysts’ earnings estimates, near the lowest since March 2009, according to weekly data compiled by Bloomberg. That compares to a ratio of 12.9 for the Shanghai Composite Index, 6.6 for Russia’s Micex and 15.1 for India’s Sensex.

Brazil’s benchmark equity index lost 17 percent from a November high through last week on concern that quickening inflation may hurt domestic demand, while a slowdown in global economic growth could cut the appetite for commodities.

Traders moved 5.19 billion reais in stocks July 8, data compiled by Bloomberg show. That compares to a daily average this year of 6.47 billion reais, according to data from the exchange.

To contact the reporter on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos in New York at papadopoulous@bloomberg.net

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