Brazil Stocks Extend Weekly Drop as Banks Fall on Economic Gloom

  • Stocks earlier fluctuated as low valuations beckon in meltdown
  • Iron-ore producer Vale SA follows metal prices lower

The Ibovespa fell for a seventh day as concern persisted over political turmoil preventing Brazil’s government from shoring up the budget and reviving growth.

The drop pushed the Ibovespa to its biggest weekly decline in two months. The gauge, which led losses in the Americas on Friday, declined 5.2 percent this week. Lender Itau Unibanco Holding SA contributed the most to the index’s drop, while iron-ore producer Vale SA followed metals lower.

"Political and economic concern are weighing on Brazilian stocks," Filipe Borges, an analyst at the brokerage Solidez Corretora, said from Sao Paulo. "In a scenario of prolonged crisis, banks should suffer more."

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. Standard & Poor’s reduced the country to junk on Sept. 9 as Latin America’s biggest economy heads toward its worst recession in 25 years.

The Ibovespa benchmark index fell 1 percent to 44,831.46 at the close of trading in Sao Paulo. BM&FBovespa’s financial index fell to an 18-month low as state-controlled lender Banco do Brasil SA slumped to its lowest price since 2009. Trading volume on the gauge’s stocks was 19 percent lower than the average in the previous 10 days.

"The mood in the market is wait-and-see," Borges said. "There are so many uncertainties. Nobody dares to make any forecast at this moment."

The index earlier swung between gains and losses as low valuations attracted investors after a speech by Federal Reserve Chair Janet Yellen fueled optimism over growth in the U.S., Brazil’s second-most important trading partner. The Ibovespa’s valuation fell to 10.5 times estimated earnings Friday, its lowest in a month.

"There has been a lot of volatility in the Brazilian market because of political and economic uncertainties," Rafael Ohmachi, an analyst at the brokerage Guide Investimentos, said from Sao Paulo. "These have been hard days."

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