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Bovespa Declines as Brazilian Banks Drop on Delinquency Concern

The Bovespa stock index declined as Itau Unibanco SA led Brazilian banks lower after it said it expects losses from bad loans to rise in the second quarter.

Itau, Latin America’s biggest bank by market value, was the worst performer on the MSCI Brazil/Financials Index, which fell the most among 10 industry groups. OGX Petroleo & Gas Participacoes SA gained the most in four months after it said an oil field off the coast of Rio de Janeiro was declared commercially viable.

The Bovespa dropped 0.4 percent to 61,750.38 at the close in Sao Paulo. The real weakened 0.1 percent to 1.8800 per U.S. dollar at 5:32 p.m. local time.

Itau expects to spend as much as 6.4 billion reais in bad-loan provisions in the second quarter, up from 6 billion reais in the first three months of 2012, according to a regulatory filing today. Banco Bradesco SA’s delinquency rate may rise 10 basis points in the second quarter, executive director Luiz Carlos Angelotti said in a conference call yesterday.

“These alerts from banks regarding expectations of rising delinquency rates really scared investors,” Pedro Paulo Silveira, chief economist at TOV Corretora, said by telephone from Sao Paulo. “Considering interest rates are decreasing and the economy is slowing down, banks may see their revenue fall as well.”

Economic Growth

Brazil’s gross domestic product is expected to grow 3.21 percent this year, according to a weekly central bank survey released April 23, down from a 3.30 percent projection March 16. Policy makers lowered the benchmark lending rate last week by 75 basis points to 9 percent, near the record low of 8.75 percent.

Itau fell 5.9 percent to 29.60 reais. Bradesco dropped 2.6 percent to 29.85 reais. The MSCI Brazil/Financials Index declined 3.2 percent.

OGX advanced 6.3 percent to 13.83 reais. The oil company controlled by billionaire Eike Batista said its Waikiki field has 285 million barrels of estimated recoverable oil reserves.

Fibria Celulose SA, the world’s largest pulp producer, fell 5.3 percent to 15.15 reais after selling 91.2 million shares for 15.83 reais each, a 1.1 percent discount from yesterday’s closing price. Banco BTG Pactual SA is raising as much as 3.66 billion reais in the biggest initial public offering for an investment bank in two years, according to a regulatory filing yesterday.

Bovespa Year-to-Date

Brazil’s benchmark equity measure has gained 8.8 percent in 2012, buoyed by local interest-rate cuts, signs of expansion in the U.S. and speculation Europe may be closer to resolving its sovereign-debt crisis. The gauge has fallen 9.7 percent since this year’s high on March 13 as signs of a slowdown in China spurred speculation that demand for commodities exports may falter.

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

Traders moved 7.7 billion reais in stocks in Sao Paulo today, data compiled by Bloomberg show. That compares with a daily average of 7.27 billion reais this year through April 19, according to data from the exchange.

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