Bovespa Gains as Steelmaker Rally Overshadows Inflation Concern

Brazil’s Bovespa stock index gained, extending the biggest weekly increase in a month, as steelmakers rallied, overshadowing concern the central bank may fail to contain inflation next year.

Gerdau SA, Latin America’s largest steelmaker, jumped the most in a week after Morgan Stanley boosted its rating on the stock. Vale SA, the iron-ore producer whose top export market is China, advanced as investors speculated the Asian country will boost consumption. Gains were limited as Gafisa SA, Brazil’s second-biggest homebuilder, dropped amid concern inflation will rise if President-elect Dilma Rousseff pressures the central bank to lower borrowing costs next year.

The Bovespa index rose 0.1 percent to 72,657.37 at 3 p.m. New York time after falling as much as 0.4 percent earlier. Thirty-six stocks gained on the measure while 29 fell. The real weakened 1.2 percent to 1.7003 per dollar.

“Steelmakers were massacred in the past months,” said Felipe Casotti, who helps manage 968 million reais ($570 million) at Maxima Asset Management in Rio de Janeiro. “They’re highly discounted. Earnings have been good here; Vale had very strong results.”

Vale, the world’s largest iron-ore producer, gained 0.9 percent to 49.76 reais. The company last month reported third-quarter profit more than tripled on rising prices and demand for the steelmaking raw material.

Chinese Consumption

Consumption will become a bigger priority in China, ahead of investment and exports, in the nation’s next five-year plan, Yao Jingyuan, chief economist for the National Bureau of Statistics, said Nov. 5. China’s worsening income inequality reduces consumption, and the key to stimulating purchases is to ensure that urban and rural household incomes grow as fast as gross domestic product, Yao said at a forum in Beijing.

Brazil’s benchmark equity gauge fell Nov. 5 from a two-year high, paring the largest weekly advance since Oct. 1, after Gerdau reported a drop in profit.

Gerdau was raised to “overweight” from “equal-weight” at Morgan Stanley, which said the stock will rebound “as fundamentals in North America improve,” according to a note today by analyst Carlos De Alba. Gerdau fell 18 percent in the three months through Nov. 5 on concern steel prices will fail to keep pace with rising costs.

Gerdau rose 3.2 percent to 22.70 reais while Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-biggest steelmaker, advanced 3 percent to 22.94 reais.

Rate Futures

Rousseff may remove central bank chief Henrique Meirelles after she takes office Jan. 1 and push to lower borrowing costs at policy makers’ first meeting to review interest rates, O Estado de S. Paulo reported yesterday, citing a person close to Rousseff whom it didn’t identify. Investors are speculating that will fuel inflation, forcing policy makers to raise borrowing costs in coming years, according to Luciano Rostagno, chief strategist at CM Capital Markets Ltd., the third-biggest currency trader on the Sao Paulo exchange.

The yield on the rate futures contract due January 2012, the most traded in Sao Paulo, dropped five basis points, or 0.05 percentage point, to 11.42 percent, while the contract due in January 2017 jumped 14 basis points to 11.86 percent.

An official with Rousseff’s office who isn’t authorized to speak publicly declined to comment on the report in Estado.

Gafisa fell 2.6 percent to 14.40 reais, helping the BM&FBovespa Real Estate Index decline 1.7 percent, the most intraday since Oct. 19.

The Bovespa trades for 11 times analysts’ 2011 earnings estimates, compared with a ratio of 11.6 for the MSCI Emerging Markets Index and 15.4 for Mexico’s IPC, according to weekly data compiled by Bloomberg. The Bovespa trades at 15.1 times the reported profits of its companies, down from 25.5 times a year ago.

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