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Localiza Tumbles on Concern Credit Measures Will Crimp Profit

Feb. 3 (Bloomberg) -- Localiza Rent a Car SA, Latin America’s biggest car-rental company, tumbled as investors speculated a jump in profit is unsustainable as policy makers rein in credit, raising the company’s costs and damping demand.

Localiza fell 4.1 percent to 24.70 reais, the steepest retreat in a week, in Sao Paulo trading. The Bovespa index rose 0.1 percent to 66,764.84.

Net income rose 81 percent to 69.4 million reais ($41.6 million) in the fourth quarter from a year earlier, Localiza said in a regulatory filing. Analysts had estimated profit of 69.8 million reais, according to the average of four projections in a Bloomberg survey.

“Fourth-quarter results were still seen by many as a potential trigger for the stock, but the reality is that attention has long shifted to possible negative implications of the monetary tightening cycle and new restrictions on auto financing,” Rodrigo Goes, an analyst at Banco BTG Pactual SA in Sao Paulo, wrote in a note to clients.

Brazilian policy makers will raise the benchmark interest rate to 12.5 percent this year from 11.25 percent, according to a central bank survey published Jan. 31, increasing financing costs for car purchases. Investors are also concerned that the central bank will take other measures to stem credit growth, Goes wrote.

While Goes recommends buying Localiza shares, the company “could remain out of favor while the market seeks better visibility on the duration of the tightening cycle and its implications on growth and general fundamentals,” he said.

To contact the reporters on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net; Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

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

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