Bovespa Rises to Four-Week High on Lower Inflation, Rate Outlook

The Bovespa stock index advanced to a four-week high as homebuilders and consumer stocks rose after economists cut their forecasts on Brazil’s interest-rate and inflation for 2012.

PDG Realty SA Empreendimentos & Participacoes, Brazil’s biggest homebuilder by revenue, led gains by companies that depend on domestic demand. The MSCI Brazil/Consumer Discretionary index was the best performer among 10 industry groups. Port developer LLX Logistica SA surged the most since 2009 after saying in a regulatory filing Intermoor do Brasil Servicos Offshore de Instalacao Ltda will build a unit in the Superporto do Acu to support the oil and gas industries.

The Bovespa gained 1.8 percent to 58,910.48 at the close of Sao Paulo trading. Fifty-eight stocks climbed on the gauge while eight fell. The real strengthened 0.3 percent to 1.7860 per U.S. dollar.

Policy makers will reduce the benchmark interest rate to 9.75 percent by the end of next year, compared with a 10 percent estimate a week earlier, according to the median forecast in a Dec. 2 central bank survey of about 100 economists published today. The forecast for 2012 inflation, as measured by the IPCA index, fell to 5.49 percent from 5.56 percent, the survey showed.

“The central bank will probably keep cutting rates for a while, as it’s very clear that economic growth is the main priority for the government,” Alvaro Bandeira, a director of Ativa Corretora brokerage, said in a telephone interview from Rio de Janeiro.

Tax Cuts

Latin America’s biggest economy will expand 3.48 percent next year, up from a previous forecast of 3.46 percent, according to the survey. Last week, Finance Minister Guido Mantega said Brazil is targeting growth of 5 percent next year as he cut taxes on some food staples, home appliances and consumer loans. The government also scrapped a tax on foreigners’ purchases of stocks and corporate bonds tied to infrastructure projects.

PDG jumped 4.8 percent to 6.73 reais. LLX, the port developer controlled by billionaire Eike Batista, surged 10 percent to 3.61 reais.

Stocks in Europe and in the U.S. climbed after Italian Prime Minister Mario Monti announced 30 billion euros ($40 billion) of austerity and growth measures to lower the nation’s debt load. The measures will have more of a positive effect in lowering bond yields than a negative impact on economic growth, Monti said at a press conference in Rome.

U.S. stocks pared gains after two officials familiar with Standard & Poor’s decision said the rating company will announce that Germany and France may be stripped of their AAA credit ratings as the debt crisis prompts all 17 euro nations to be put on review for possible downgrade.

Tim, Banco do Brasil

Tim Participacoes SA, Brazil’s second-largest wireless carrier, rose 2.7 percent to 8.84 reais after saying in an e-mailed statement it plans to invest 7.5 billion reais ($4.2 billion) in infrastructure in Brazil from 2011 to 2013 to double its fiber optic network.

Banco do Brasil SA, Latin America’s biggest bank by assets, fell 2.9 percent to 24.17 reais, the worst performer on the Bovespa. Brazil’s government may boost the capital of state banks by as much as 40 billion reais so they can continue to offer credit, O Globo reported, citing unidentified officials in the government’s economic team. Banco do Brasil and Caixa Economica Federal will need at least 15 billion reais, the Rio de Janeiro-based newspaper said.

Bull Market

The Bovespa entered a bull market in October after gaining 22 percent from a two-year low on Aug. 8 as Brazil’s interest-rate cuts and speculation Europe was working toward solving its debt crisis buoyed demand for equities. The index is still down 15 percent this year on concern flagging global commodity demand and quickening inflation will hurt corporate earnings growth.

Brazil’s benchmark equity index trades at 10.4 times analysts’ earnings estimates, in line with the ratio for MSCI Inc.’s measure of 21 developing nations’ equities, weekly data compiled by Bloomberg show.

Traders moved 5.94 billion reais in stocks in Sao Paulo today, data compiled by Bloomberg show. That compares with a daily average this year of 6.52 billion reais through Dec. 1, according to data from the exchange.