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Brazilian Stocks Decline as U.S. GDP Spurs Fed Stimulus Concern

July 31 (Bloomberg) -- The Ibovespa fell as faster U.S. growth fueled concern that the Federal Reserve will reduce stimulus that has buoyed demand for Brazil’s stocks even after the central bank refrained from indicating a timeline for cuts.

Homebuilders PDG Realty SA and Gafisa SA were among the worst performers on the gauge. Footwear maker Arezzo Industria & Comercio SA dropped after posting earnings that missed estimates in the second quarter. Steelmaker Gerdau SA followed metals higher after government officials in China pledged to stabilize growth in Brazil’s top trading partner.

The Ibovespa lost 0.7 percent to 48,234.49 at the close of trading in Sao Paulo, paring this month’s gain to 1.6 percent. The real gained 0.3 percent to 2.2757 per dollar at 5:34 p.m. local time. U.S. gross domestic product rose at a 1.7 percent annualized rate in the second quarter, according to a Commerce Department report. The median forecast of 85 economists surveyed by Bloomberg was a 1 percent advance.

“The Brazilian equity market is depending a lot on what the Fed will do with its stimulus policy to pick a direction, and the GDP report today reinforces speculation that the central bank will scale back its bond purchases sooner rather than later,” Gustavo Mendonca, an economist at Saga Capital, said by phone from Rio de Janeiro.

The Ibovespa briefly pared losses after the Fed said it will keep its $85 billion in monthly bond buying to stimulate the economy, repeating the pledge it has used since September that it will continue the purchases until the U.S. labor market outlook has improved substantially.

China Outlook

PDG declined 6.6 percent to 1.84 reais. Gafisa fell 6.1 percent to 2.76 reais. Arezzo lost 2.5 percent to 35.58 reais.

The Ibovespa earlier gained as much as 0.5 percent as concern eased that growth in China will falter. Gerdau added 2.9 percent to 14.59 reais as the Bloomberg Base Metals 3-Month Price Commodity Index added 1.9 percent.

China will maintain steady second-half growth amid “extremely complicated domestic and international conditions,” the Xinhua News Agency reported yesterday after a Politburo meeting led by President Xi Jinping.

The Ibovespa slumped 20 percent this year through yesterday, wiping out $238 billion from the value of Brazilian stocks, according to data compiled by Bloomberg. Brazil’s benchmark equity gauge trades at 12 times analysts’ earnings estimates for the next four quarters, compared with 10.3 for the MSCI Emerging Markets Index of 21 developing nations’ equities.

Trading volume for stocks in Sao Paulo was 6.9 billion reais today, according to data compiled by Bloomberg. That compares with a daily average of 7.66 billion reais this year through July 26, according to data compiled by the exchange.

To contact the reporter on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editor responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net

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