Brazil's Stocks Slump as Political Turmoil Eclipses Fed Decision

  • Latin American nation struggles to pass reforms in Congress
  • Petrobras, Itau and Bradesco lead losses in Ibovespa

Brazilian stocks led declines among emerging markets amid speculation President Dilma Rousseff will fail to shore up the budget and revive Latin America’s largest economy.

The benchmark equity gauge trimmed its weekly rally, joining world losses, as the Federal Reserve’s warning that the global economic outlook is uncertain outweighed its decision to keep interest rates on hold. The Ibovespa has plunged 19 percent from this year’s peak in May as the government struggles to boost its finances and Brazil heads toward the longest recession since the 1930s amid a widening graft probe.

"A lot has been said by the government about plans to put the country back on track, but we must urgently move from talk to action," Adeodato Volpi Netto, the head of capital markets at the equity research firm Eleven Financial, said from Sao Paulo. "The economy is falling to pieces, and we need signals that things can improve before this year ends."

The Ibovespa dropped 2.7 percent to 47,264.08 at the close of trading in Sao Paulo, paring this week’s gain to 1.9 percent. State-controlled oil producer Petroleo Brasileiro SA followed crude lower. Lenders Itau Unibanco Holding SA and Banco Bradesco SA contributed most to the gauge’s slide.

Traders have turned bearish on Brazil as the government struggles to persuade Congress to approve measures that include tax increases and spending cuts to avoid further downgrades of its credit rating. While the Fed’s decision to keep rates unchanged brought some relief to international investors on Thursday, that doesn’t move the needle for Brazil, according to Alvaro Marangoni, a partner at Quadrante Investimentos.

"Brazil has gained some breathing room to do the necessary reforms before the Fed starts raising rates again," Marangoni, who helps oversee 500 million reais ($127.8 million), said from Sao Paulo. "Our local problems have become much bigger than the international ones.”

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