Ibovespa Rises as U.S. Debt Talks Boost Brazilian Equity Outlook

The Ibovespa rose the most in a week as speculation that lawmakers in Washington will agree to raise the U.S. debt ceiling eased concern that a prolonged deadlock will curb demand for riskier assets including Brazilian stocks.

Auto-parts maker Iochpe-Maxion SA surged the most since December after Credit Suisse Group AG raised it to the equivalent of buy. Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil’s biggest retailer, rose after saying third-quarter net sales increased 16 percent.

The Ibovespa added 0.9 percent to 52,996.64 at the close of trading in Sao Paulo, with 45 of the benchmark’s 73 member stocks advancing. The real strengthened 1.2 percent to 2.1808 per dollar at 5:30 p.m. local time, the most among emerging-market currencies. U.S. stocks rallied as the White House endorsed a short debt-limit increase with no policy conditions attached, signaling potential support for House Republicans’ plan for a month-long reprieve from a default.

“No one truly expects the U.S. to default on its debt, and once politicians reach an agreement, we could see an increase in capital flows into Brazilian equities,” Otavio Vieira, a partner at hedge fund Fides Asset Management, said in a phone interview from Rio de Janeiro.

The U.S. federal government is in its 10th day of a partial shutdown and has a week before its borrowing authority lapses Oct. 17.

Pao de Acucar rose 4.6 percent to 109.99 reais. Net sales increased to 14.1 billion reais in the three months ending in September, according to a regulatory filing today disclosing preliminary results. The company said on its website it will report third-quarter earnings on Oct. 16.

Rate Increase

Iochpe added 4.9 percent to 28.64 reais.

Brazilian swap rates surged after the central bank increased the target lending rate for a fifth straight meeting, raising it to 9.5 percent from 9 percent. Speculation mounted that benchmark borrowing costs will reach 10 percent this year after policy makers signaled yesterday that they will maintain the pace of increases.

Lupatech SA, a provider of oil equipment and services, slumped 43 percent to 1.04 reais after denying a report that Brazil’s development bank BNDES is leading talks with investors for a capital injection into the company and renegotiation of its debt. The shares have gained 148 percent this month.

The Ibovespa entered a bull market Sept. 9 after rising 20 percent from this year’s low on July 3 through that day. The gauge is still down 18 percent in dollar terms this year, compared with a decline of 3.9 percent for the MSCI Emerging Markets Index of 21 developing nations’ equities.

Trading volume of stocks in Sao Paulo today was 6.4 billion reais, according to data compiled by Bloomberg. That compares with a daily average of 7.6 billion reais this year through Oct. 8, according to data compiled by the exchange.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE