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Bovespa Falls on Concern Inflation to Limit GDP; Gerdau Tumbles

March 21 (Bloomberg) -- The Bovespa stock index fell for the first time in three days on concern consumer prices will rise more than previously forecast, limiting Brazil’s economic expansion.

MRV Engenharia & Participacoes SA joined a rout for homebuilders as traders boosted bets for higher interest rates. Exchange operator BM&FBovespa SA fell the most since March 10. Gerdau SA, Latin America’s largest steelmaker, led declines on the index after saying it plans to sell as much as 4.2 billion reais ($2.5 billion) in new shares. Rival Usinas Siderurgicas de Minas Gerais SA fell after UBS AG recommended selling the shares.

“We have to overcome the inflation question to give clear signals to investors,” Joaquim Levy, who oversees the equivalent of $109 billion at Banco Bradesco SA’s asset management arm, said in an interview at Bloomberg’s Sao Paulo office.

The Bovespa fell 0.3 percent to 66,689.61 at the 4:15 p.m. New York time close. Thirty-six stocks dropped on the index while 32 rose. The real fell 0.1 percent to 1.6663 per dollar.

Economists covering the Brazilian economy cut their forecast for 2011 gross domestic product growth for a fourth straight week, the central bank said.

Economic Expansion

Latin America’s largest economy will expand 4.03 percent this year, down from a week-earlier forecast of 4.10 percent, according to a March 18 central bank survey of about 100 economists published today. Analysts raised their forecast for 2011 consumer price inflation to 5.88 percent, from 5.82 percent previously.

Traders reacted by pushing up yields on interest-rate futures contracts.

MRV fell 3.5 percent to 13.66 reais. BM&FBovespa, the operator of Latin America’s biggest securities exchange, lost 2.1 percent to 11.31 reais.

Gerdau SA dropped 4.9 percent to 20.25 reais while parent Metalurgica Gerdau SA fell 4.2 percent to 23.95 reais.

Gerdau said in a filing today it will hold a primary offering of new common and preferred shares in Brazil and abroad. Metalurgica Gerdau and BG Participacoes also plan to sell existing preferred shares in a secondary offering. Gerdau’s controlling shareholders will use the proceeds from the secondary offering to buy stock in the primary sale.

Usiminas, Brazil’s second-biggest steelmaker, lost 2.5 percent to 20.56 reais after being cut to “sell” from “neutral” at UBS.

Vivo

The Bovespa’s drop was limited as telecommunications shares advanced, led by Vivo Participacoes SA, after AT&T Inc. agreed to buy T-Mobile USA from Deutsche Telekom AG for $39 billion.

Vivo, Brazil’s biggest wireless carrier, gained 3.3 percent to 61 reais.

Morgan Stanley recommended bullish options on Brazilian stocks, saying that food inflation “seems to be in check” while strong demand may allow the economy to grow 4 percent this year, according to a March 18 report from equity derivatives analysts including Viktor Hjort.

“Brazil is an incredible market,” Mark Mobius, chairman of Templeton Asset Management’s Emerging Markets Group, said in an interview with Bloomberg Television today. “We have to add into Brazil.”

Brazil’s benchmark equity gauge rose March 18, capping its second weekly increase this month, as homebuilders rallied and the Group of Seven nations acted to support Japan’s economy, leading stocks worldwide to rally.

The Bovespa lost 3.8 percent this year after homebuilders and banks retreated on concern rising inflation will spur additional measures to restrict credit growth. The index trades at 10.6 times analysts’ earnings estimates, according to weekly data compiled by Bloomberg. That compares to a ratio of 13.7 for the Shanghai Composite Index, 7.2 for Russia’s Micex, and 16.7 for India’s Sensex.

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

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

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