Bovespa Rises as PDG Realty Advances on Interest-Rate Outlook

The Bovespa index rose, paring a fifth weekly drop, as waning inflation concern in Brazil prompted traders to step up bets on interest-rate cuts, bolstering the outlook for companies that sell in the local market.

Homebuilder PDG Realty SA Empreendimentos & Participacoes contributed the most to the gauge’s advance as yields on interest-rate futures contracts dropped. Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil’s biggest retailer, rebounded from a three-month low after Goldman Sachs Group Inc. raised its recommendation to the equivalent of hold.

The Bovespa added 0.7 percent to 54,463.16 at the close in Sao Paulo, cutting its weekly decline to 0.1 percent. Forty-one stocks rose on the gauge while 23 dropped. The real strengthened 2.1 percent to 1.9874 per U.S. dollar after the central bank offered currency swap contracts at an auction for the fourth day this week.

“From what we’ve seen on the inflation front so far, things seem to be under control,” Clodoir Vieira, an economist at Sao Paulo-based brokerage Souza Barros Corretora, said in a phone interview. “Any bad news from abroad could change everything very quickly.”

A report today from the Foundation Economics Research Institute showed consumer prices in Sao Paulo as measured by the IPC-Fipe rose 0.41 percent in the four weeks through May 23 from the previous period, below the median estimate of 0.44 percent among 24 economists surveyed by Bloomberg.

Inflation Forecasts

Economists surveyed by the central bank on May 18 predicted that prices in Brazil, as measured by the IPCA index, will rise 5.21 percent this year and 5.6 percent in 2013, up from 5.08 percent and 5.5 percent four weeks before. Policy makers target inflation of 4.5 percent, plus or minus two percentage points.

Yields on most Brazilian interest-rate futures contracts fell. The yield on the contract due in January dropped three basis points, or 0.03 percentage point, to 8.04 percent.

PDG Realty jumped 5.6 percent to 3.60 reais, extending this week’s rally to 14 percent. The stock trades at 4.6 times analysts’ earnings estimates for the next four quarters, which compares with the 9.2 ratio for the Bovespa index, data compiled by Bloomberg show.

Pao de Acucar gained 2.2 percent to 79.70 reais.

“Some stocks look cheap after the dive the market took in the past few weeks,” Fausto Gouveia, who helps manage 380 million reais ($190 million) at Legan Administracao de Recursos in Sao Paulo. “Homebuilders, for example, became attractive, as prices no longer reflected the companies’ fundamentals.”

The Bovespa entered a bear market on May 17 after tumbling 21 percent from this year’s high on March 13 through that day. The measure has since pared the decline to 20 percent.

Trading volume was 5.61 billion reais in stocks in Sao Paulo, data compiled by Bloomberg show. That compares with a daily average of 7.29 billion reais this year through May 24, according to data from the exchange.

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