Brazil's Stock Rally Fizzles as Petrobras Joins Plunge in Crude

Brazil Returns to Junk Status, Bonds Tumble
  • Oil sinks on estimates U.S. supply gained a second week
  • Currency leads gains among major Latin American tenders

Brazilian shares erased an earlier rally as Petroleo Brasileiro SA followed a plunge in crude prices.

Petrobras led losses in the benchmark equity gauge as estimates that U.S. crude stockpiles rose reinforced worries that there’s no end in sight for the global supply surplus. The Ibovespa had rallied earlier Wednesday after China, Brazil’s top trading partner, vowed to increase spending to revive its economy. The real rose the most among seven regional currencies.

“Petrobras is following crude very closely in the past few months because this new level of oil makes investors re-evaluate the potential profitability of its offshore investments,” Lauro Vilares, an analyst at brokerage Guide Investimentos, said in a phone interview from Sao Paulo.

Stocks in Latin America’s largest economy entered a bear market last month, after tumbling 20 percent from this year’s high in May, as President Dilma Rousseff struggles to shore up the budget amid forecasts for the longest recession since the 1930s. To make matters worse, a surprise devaluation of the Chinese yuan in August sparked a selloff in emerging markets before a potential U.S. interest-rate increase.

The Ibovespa dropped 0.2 percent to 46,657.10 at the close of trading in Sao Paulo. The real rose for a second straight day, appreciating 1.1 percent to 3.7801 per dollar. The currency had approached a record low last week.

Financial shares rallied, led by gains in Itau Unibanco Holding SA and Banco Bradesco SA. BM&FBovespa SA, the operator of Brazil’s exchange, rallied the most in two weeks after selling 20 percent of its stake in CME Group Inc. to raise cash. The amount is initially estimated at 450 million reais ($119 million), according to a regulatory filing Wednesday.

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