Bank Shares Lead Losses in Ibovespa as Economic Optimism Fizzles

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Brazilian banks led losses in the Ibovespa on speculation that a government plan to attract $64 billion in investments will fail to revive Latin America’s largest economy.

Itau Unibanco Holding SA extended a four-day rout while Banco Bradesco SA was the biggest drag on the benchmark gauge. The index closed little changed, after earlier rallying on bets President Dilma Rousseff’s program to lure investments for roads and railways would boost growth as the nation heads toward the worst contraction in 25 years.

“That money is not going to come right away,” Ari Santos, a trader at brokerage H.Commcor, said by phone from Sao Paulo. “We need to know when they’re starting, when we’ll see the money coming in. And these things take time.”

Rousseff’s previous infrastructure program, which included caps on profits, failed to live up to expectations. Not a single auction was held after she unveiled a plan in 2012 to put up 14 new railways for concession. In the next year, a planned high-speed train to link Sao Paulo with Rio de Janeiro was shelved.

The program announced on Tuesday is part of a plan to boost employment and productivity, while limiting government spending. After the nation posted the worst budget deficit on record, Rousseff’s administration has vowed to increase taxes and cut expenses to avert the loss of Brazil’s investment-grade credit rating.

Bull Market

Brazilian equities entered a bull market April 24, after rallying more than 20 percent from this year’s low, on speculation government measures would boost consumer and investor’s confidence. Since then, the Ibovespa has slumped 6.7 percent. The gauge closed at 52,815.99 on Tuesday as 38 of its 66 stocks dropped.

Itau has slumped 5.9 percent since June 2. Bradesco retreated 1.1 percent.

The Ibovespa also joined a slump in emerging markets on concern China’s economy will slow further. Vale SA, the world’s largest iron-ore producer, fell with the steelmaking ingredient.

Kroton Educacional SA jumped after Brazil’s education minister said on television Monday that the government will resume student loans under the Fies program in the second half of the year.

Trading volume of equities in Sao Paulo was 7 billion reais ($2.26 billion) on Tuesday, according to data compiled by Bloomberg. That compares with a daily average of 6.95 billion reais this year, exchange data show.

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