Bovespa Index Declines on Commodities Drop, Inflation Outlook

The Bovespa stock index fell, adding to its third monthly decline this year, as commodities dropped and a report showed lending in Brazil expanded in April, spurring speculation that policy makers haven’t done enough to curb inflation.

Tam SA dropped after Bank of America Corp. said in a research note that the shares may decline 40 percent should its planned acquisition by Lan Airlines not be approved by Chilean antitrust authorities. Petroleo Brasileiro SA and Vale SA followed crude and metal prices lower.

The Bovespa index fell 0.5 percent to 63,953.93 at the close of Sao Paulo trading at 4:15 p.m. New York time. It dropped 3.3 percent this month. Fifty-four stocks declined on the index, while 11 advanced. The real strengthened 0.3 percent at 1.5893 per U.S. dollar.

“I don’t see the stock market performing better until there are signs the central bank is winning its battle against inflation,” said Richard Wahba, an analyst at Fator Corretora in Sao Paulo.

The pace of lending in Brazil accelerated in April even as the central bank increased interest rates and the government doubled a tax on consumer credit. Bank lending expanded 1.3 percent in April from March, the central bank said in Brasilia. Total outstanding credit rose 21 percent from a year ago to 1.776 trillion reais from a revised 1.753 trillion reais in March.

Consumer prices will rise 6.23 percent this year, from a forecast of 6.27 percent a week earlier, according to the median estimate in a May 27 central bank survey of about 100 economists published today. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

‘Gradual Process’

“We continue to see credit deceleration as a gradual process, so inflation should remain at high levels still for a while,” Denis Blum, an economist at Bradesco Corretora, said in a note to clients today.

Consumer, construction and wholesale prices, as measured by the IGP-M price index, rose 0.43 percent in May, down from a 0.45 percent increase in January, the Rio de Janeiro-based Getulio Vargas foundation said today. The figure trailed the median 0.6 percent rise forecast by 21 economists surveyed by Bloomberg.

“It was a relief, but provoked just by wholesale prices,” Solange Srour, chief economist at BNY Mellon ARX Investimentos in Rio de Janeiro, said in a telephone interview.

Copper, Oil

Copper fell in New York for the first time in five days. Oil headed for its first monthly decline since August on speculation fuel demand may falter amid a slowdown in the U.S. economic recovery and Europe’s continuing debt crisis.

Petrobras, as Petroleo Brasileiro is known, slid 0.9 percent to 24.08 reais. Vale fell 0.4 percent to 44.79 reais.

Tam dropped 0.4 percent to 34.51 reais. Bank of America’s analysts Sara Delfim and Renato Mimica said in a note to clients that while it’s “unlikely” the merger with Lan won’t go through, the uncertainty about the deal is a risk for the share’s performance in the short run.

Gol Linhas Aereas Inteligentes SA gained 3.2 percent to 20.14 reais. Lan may seek a deal with Gol should its takeover of Tam SA fail, Santiago-based newspaper El Mercurio reported, citing an interview with Ignacio Cueto, the Chilean airline’s chief executive officer.

Investors poured 1.79 billion reais into Latin America’s biggest equity market in the month through May 25, after pulling 4.07 billion reais from February through April, data from the Sao Paulo exchange show.

The Bovespa tumbled 12 percent from a November high through last week on concern accelerating inflation will hurt economic growth. The index trades at 10.3 times analysts’ earnings estimates, the lowest since March 2009, according to weekly data compiled by Bloomberg. That compares to a ratio of 12.5 for the Shanghai Composite Index, 6.7 for Russia’s Micex and 14.6 for India’s Sensex.

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