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Ibovespa Extends Weekly Gain as Oi Rallies on Deal Speculation

The Ibovespa climbed, extending a second consecutive weekly gain, as Oi SA rallied on speculation the Brazilian phone company will get a better deal in its merger with Portugal Telecom SGPS SA.

The MSCI Brazil/Telecommunication Services Index was the best performer among 10 industry groups. State-run Petroleo Brasileiro SA capped its biggest weekly rally in four weeks. Direcional Engenharia SA fell after the homebuilder’s second-quarter booked sales sank 77 percent from a year earlier.

The Ibovespa rose 0.4 percent to 54,785.93 at the close of trading in Sao Paulo, extending this week’s gain to 1.4 percent. The real was little changed at 2.2204 per dollar at 5:29 p.m. local time. Oi rallied after HSBC Holdings Plc said in a note that Portugal Telecom may have to agree to a less favorable share swap ratio in its merger with the Brazilian phone company because of its investment in the commercial paper of a Espirito Santo International SA affiliate.

“In the short term, Oi’s moves will depend on speculation about the future of its merger with Portugal Telecom,” Otavio Vieira, a partner at hedge fund Fides Asset Management, said by phone from Rio de Janeiro.

Portugal Telecom said it holds 897 million euros ($1.2 billion) of commercial paper from a unit of Espirito Santo International, which failed to make payments on some of its short-dated debt. Brazil’s state development bank, known as BNDES, said July 8 that the debt purchase by Portugal Telecom showed poor corporate governance.

Oi advanced 13 percent to 1.61 reais. Petrobras increased 0.9 percent to 18.28 reais, pushing a weekly gain to 4.5 percent. Direcional sank 5.9 percent to 10.63 reais.

The Ibovespa entered a bull market on May 7, surging 20 percent from this year’s low, as state-controlled companies rallied on speculation a change in government will reduce intervention.

Trading volume of stocks in Sao Paulo today was 5.04 billion reais, according to data compiled by Bloomberg. That compares with a daily average of 6.48 billion reais this year, according to data from the exchange.

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