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Bovespa Index Gains, Trimming Monthly Decline, on Budget Cuts

The Bovespa stock index gained, paring a monthly decline, after the Brazilian government’s spending cuts eased concern that accelerating inflation will limit earnings growth.

Lojas Americanas SA soared the most since 2009, leading retailers higher, after earnings gains by two rivals boosted the industry’s prospects even as the government takes steps to curb credit growth. Hypermarcas SA, Brazil’s fourth-largest consumer-goods company by market value, gained 3.9 percent. Advances were offset as phone operator Tele Norte Leste Participacoes SA slumped for a sixth session after posting a loss in the first quarter.

The Bovespa rose 0.7 percent to 66,132.86 at the 4:15 p.m. New York time close, capping its first monthly decline since January with a 3.6 percent drop. The gauge is down 1.4 percent this week. The real strengthened 0.1 percent to 1.5766 per dollar today.

“We need to have less government spending -- that’s always positive,” said Alvaro Bandeira, director of Rio de Janeiro-based brokerage Ativa Corretora. This month’s decline “has a lot to do with Japan, the global economy, worries about inflation worldwide. Here there’s the threat of additional government measures, which leaves investors fearful,” he said.

Brazil will shelve some public works that were behind schedule, a move that may reduce spending this year by as much as 10 billion reais ($6.3 billion). The federal government will suspend projects that were approved in budgets from 2007 to 2009 and haven’t started yet, the Finance Ministry said today in a statement on its website.

Inflation Forecasts

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. Economists have boosted their 2011 inflation forecasts for seven straight weeks, according to surveys published by the central bank.

“The main reason behind the lagging flows into Brazil continues to be the lack of visibility on current economic policy, especially as inflation expectations continue to rise, making it unclear whether tighter monetary policy will be needed or higher inflation will be tolerated,” analysts at JPMorgan Chase & Co., led by Emy Shayo Cherman, wrote in a note to clients dated yesterday.

The central bank reported the budget surplus before interest payments rose to 13.6 billion reais in March from 7.9 billion reais in February, and compared with the 12.1 billion reais median forecast in a Bloomberg survey of 12 analysts.

That, together with the budget cuts, spurred traders to drive down yields on most interest-rate futures contracts.

Lojas Rises

Lojas Americanas SA, Brazil’s biggest discount retailer, surged 6.5 percent to 14.00 reais after competitors Cia. Hering and Lojas Renner SA reported first-quarter earnings gains of 74 percent and 29 percent, respectively. Renner, Brazil’s biggest publicly traded clothing retailer, rose 2.8 percent to 58.05 reais while Hering advanced 4.5 percent to 34.05 reais.

Hypermarcas rose 3.9 percent to 21.10 reais.

Magazine Luiza SA, an electronics and furniture retailer, raised 925.8 million reais in an IPO. The Franca-based company’s shares were priced at 16 reais each, at the bottom of the range of 16 reais to 21 reais in the company’s April 17 prospectus. The shares are scheduled to begin trading on May 2.

The Bovespa dropped as much as 0.3 percent in the first half hour of trading as telecom shares declined.

Oi’s Loss

Oi, as the holding company that controls Brazil’s biggest fixed-line telephone carrier is known, swung to a first-quarter loss, excluding minority interest, of 170 million reais. Credit Suisse Group AG was expecting net income of 207 million reais, according to a note to clients today. The shares dropped 1.5 percent to 26.27 reais.

The Bovespa slumped 5.2 percent this year through yesterday after declines in oil companies, homebuilders and banks outweighed 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.

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