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Bovespa Falls as Brazil Signals Yearlong Rate-Cut Cycle Near End

The Bovespa stock index dropped after Brazil’s central bank indicated it may be done cutting interest rates after nine reductions over the past year.

Iron-ore producer Vale SA (VALE3) fell for a sixth day as prices for the steelmaking material tumbled further. Natura Cosmeticos SA (NATU3), Brazil’s biggest cosmetics maker, plunged after a report saying it plans to sell shares in a secondary offering.

Brazil’s benchmark equity measure slid 0.2 percent to 57,256.43 at the close of trading in Sao Paulo. The real climbed 0.2 percent to 2.0468 per dollar. Swap rates on most contracts rose after policy makers, in a statement accompanying their decision to cut the target lending rate to 7.5 percent, said that if there is room for an additional adjustment it “should be carried out with maximum parsimony.”

“It looks like the central bank is closer to putting an end to the rate cuts than investors were expecting, which is negative for the market, at least in the short term,” Marc Sauerman, who helps oversee 650 million reais ($318 million) at J Malucelli Investimentos in Curitiba, Brazil, said in a phone interview. “It could be a positive looking forward if we find out that the central bank took this stance because the recovery is in fact on track.”

Vale, the heaviest-weighted stock on the Bovespa (IBOV) index after Petroleo Brasileiro SA, dropped 0.4 percent to 32.32 reais. Iron ore for immediate delivery slid 1.8 percent to $88.70 a metric ton, according to data compiled by The Steel Index Ltd. Prices for the raw material have fallen 23 percent in last month.

Demand for iron ore has declined as China’s economy, the world’s second-largest, expanded 7.6 percent in the second quarter, the slowest annual pace in three years.

China Slowdown

“Concern about the slowdown in China is weighing on the Brazilian market,” Otavio Vieira, who helps manage 270 million reais as a partner at the hedge fund Fides Asset Management, said in a phone interview from Rio de Janeiro. “That’s particularly bad for companies that depend heavily on commodities exports, such as Vale.”

PDG Realty SA Empreendimentos & Participacoes, Brazil’s second-biggest homebuilder by revenue, rose 1.8 percent to 3.90 reais after saying it sold all bonds in a 796 million reais offer.

The MSCI Brazil/Utilities Index dropped the most among 10 industry groups as power companies tumbled after the government set rules to seize licenses and take control of companies that don’t meet contract requirements.

Power to Intervene

The energy regulator, Aneel, will have more power to intervene in utilities and take over management to ensure rules are met as well as to auction seized licenses to other companies, according to a rule published in the government’s official gazette today.

Cia. de Transmissao de Energia Eletrica Paulista, a Sao Paulo-based electricity distributor, declined 7.3 percent to 50.05 reais. Cia. Energetica de Sao Paulo, the state-controlled power company known as Cesp, fell 6.1 percent to 33.70 reais.

Natura tumbled 4.5 percent to 51.10 reais. Controlling shareholders plan to sell a stake in a secondary offering, DebtWire reported, citing two people it didn’t identify. The company didn’t immediately comment on the report when contacted by Bloomberg News.

The Bovespa has climbed 9.1 percent from this year’s low on June 5 as eased concern about Europe’s crisis and borrowing costs at a record low in Brazil boosted demand for equities. The index trades at 11.6 times analysts’ earnings estimates for the next four quarters, which compares with the ratio of 10.7 times for MSCI Inc.’s measure of 21 developing nations’ equities, data compiled by Bloomberg show.

Trading volume was 5.89 billion reais in stocks in Sao Paulo, data compiled by Bloomberg show. That compares with a daily average of 7.18 billion reais this year through Aug. 29, according to data compiled by 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 at papadopoulos@bloomberg.net

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