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Pao de Acucar Drops With Consumer Stocks on Rate Outlook

Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil’s biggest retailer, retreated from a record high as consumer stocks sank after the central bank signaled that it’s prepared to increase interest rates.

Shares dropped 3 percent to 100.61 reais at the close of trading in Sao Paulo, snapping a six-day advance. It was the second-worst performer in the MSCI Brazil/Consumer Staples Index, which fell 0.5 percent. The Bovespa index gained 1.6 percent.

Brazil’s swap rates rose the most in two weeks as traders stepped up bets that policy makers will increase borrowing costs. They removed language indicating that the benchmark Selic should remain stable for a prolonged period from their statement released yesterday after holding it at a record low 7.25 percent for a third meeting.

“Increasing interest rates would be a disaster, and bad for retailers,” Pedro Galdi, the chief strategist at Sao Paulo-based brokerage SLW Corretora, said in a phone interview. “The economy is already not growing.”

Brazil’s economy grew 0.6 percent in the fourth quarter of last year, less than the 0.8 percent median estimate of 37 analysts surveyed by Bloomberg. It expanded 0.9 percent in 2012. Inflation has exceeded the midpoint of the central bank’s target for more than two years.

“The central bank will have to raise the Selic, there’s no other way,” Karina Freitas, an analyst at brokerage Concordia SA in Sao Paulo, said by phone. “That will affect consumption, as it increases the cost of credit. It could have an impact on Pao de Acucar’s outlook.”

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