Brazilian Stocks Decline on Interest Rate Increase, Oil Decline

Brazilian stocks dropped, following two sessions of gains, after the country’s central bank raised its benchmark interest rate and oil tumbled, dimming the outlook for producers.

Homebuilder Rossi Residencial SA and retailer B2W Cia. Global do Varejo fell as traders raised bets for higher borrowing costs. Oil companies OGX Petroleo & Gas Participacoes SA and Petroleo Brasileiro SA followed crude prices lower. Fibria Celulose SA rallied on speculation that lower inventories will lead to higher prices.

The Bovespa stock index fell 0.1 percent to 66,972.37 at the close of Sao Paulo trading at 4:15 p.m. New York time after dropping 0.8 percent earlier. Forty-two stocks slid on the index, while 23 advanced. The real weakened 0.3 percent to 1.5712 per U.S. dollar. Brazilian markets had been closed for local holidays since April 21.

Policy makers, led by central bank President Alexandre Tombini, voted 5-2 to raise the Selic rate by a quarter point to 12 percent from 11.75 percent on April 20, surprising the majority of 58 analysts surveyed by Bloomberg, 15 of whom forecast the move. Forty-one analysts predicted a half-point increase, and two said there would be a pause. Two board members voted for a half-point increase, the bank said.

“If the central bank had raised the rate by half a point, investors would probably see the tightening cycle as finished,” Kelly Trentin, head analyst at Spinelli Corretora in Sao Paulo, said in a telephone interview. “Now it’s not clear how many times the central bank will further increase rates to curb inflation.”

Smaller Rate Increase

The rate rise was smaller than the 0.5 percentage-point increases the bank implemented at its January and March meetings. Policy makers are betting a combination of higher borrowing costs, curbs on consumer lending and government spending cuts will bring inflation back to its target in 2012, according to the central bank’s quarterly inflation report, published March 30.

Economists covering Brazil increased their inflation forecast for the seventh straight week. Consumer prices will rise 6.34 percent in 2011, up from a forecast of 6.29 percent, according to an April 20 survey of about 100 economists published today. Economists left unchanged their forecast for inflation next year at 5 percent, the survey showed.

Yields on interest-rate futures contracts maturing in October and beyond rose. Yields on the contract due in January rose 6 basis points, or 0.06 percentage point, to 12.29 percent.

Crude oil fell from the highest price in 31 months in New York as U.S. equities declined and the dollar erased intraday losses against other major currencies.

Petrobras, OGX Fall

Petrobras slid 0.4 percent to 26.18 reais. OGX fell 1.9 percent to 17.65 reais. Rossi dropped 2.1 percent to 14.74 reais. B2W declined 0.8 percent to 22.45 reais.

Cosan SA Industria e Comercio, which shares control of the world’s biggest sugar-cane processor, gained 1.4 percent to 23.80 reais after newspaper Estado de S.Paulo, citing an unidentified government official, reported that Brazil will probably rule out a plan to tax sugar exports to spur more ethanol production.

Fibria, the world’s largest pulp producer, advanced 2.5 percent to 24.88 reais. Global pulp inventories declined to 32 days of supply in March, from 35 days in February, according to a Bank of America Corp. report that cited data from the Pulp and Paper Products Council.

“Data is a positive indication that the pulp market is indeed tighter than expected and we do not rule out further pulp price increases throughout the year,” analysts Thiago Lofiego, Felipe Hirai and Karel Luketic wrote in a note to clients dated April 21. “We reiterate our ‘Buy’ rating on Fibria, which is the most leveraged name to pulp under our coverage.”

Participacoes Declines

HRT Participacoes em Petroleo SA, the Brazilian oil-exploration company that raised $1.5 billion in an initial public offering last year, fell 3.4 percent to 1,556 reais and plunged as much as 7.5 percent earlier after it said investors holding 32 percent of its capital have the right to sell their stake after a so-called lock-up period ended today.

The Bovespa index will advance 10 percent by the end of the year, as the government succeeds in controlling inflation, according to Alan Gandelman, chief executive officer at broker ICAP Plc’s Brazil unit.

“Brazil has been very correct on economic policy,” and inflation is “under control,” Gandelman said in an interview on Bloomberg Television. “I am keeping my forecast of the 10 percent increase by the end of the year.”

The Bovespa is down 3.4 percent this year as homebuilders and banks declined on concern inflation will limit growth, overshadowing a rally in telecom shares.

The index trades at 10.7 times analysts’ earnings estimates, according to weekly data compiled by Bloomberg. That compares to a ratio of 13.8 for the Shanghai Composite Index, 7.5 for Russia’s Micex, and 15.5 for India’s Sensex.

Investors pulled 3.87 billion reais from Latin America’s biggest equity market this year through April 18, data from the Sao Paulo exchange show.

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