Ibovespa Falls Most in Americas as Commodity Decline Sinks Vale

  • Oil producer Petrobras also follows slide in prices for crude
  • Arrests in graft probe threaten government's economic agenda

Brazilian stocks fell the most in the region as a slump in commodity prices dimmed the outlook for the country’s raw-materials exporters and the arrest of a government Senator imperiled President Dilma Rousseff’s agenda in Congress.

The benchmark Ibovespa index fell as Vale SA, the world’s biggest iron-ore miner, touched the lowest since 2004. State-controlled oil producer Petroleo Brasileiro SA retreated as a drop in crude prices dimmed the outlook for its offshore investments. Lenders Banco Bradesco SA and Itau Unibanco Holding SA contributed most to the gauge’s decline.

Stocks have lost 21 percent since their peak this year in May as a political crisis, fueled by a sweeping corruption investigation, threatens fiscal measures Rousseff’s administration says are crucial to shore up the country’s finances. The detention of her party’s leader in the Senate delayed voting on new budget targets as Brazil heads toward its longest recession since the 1930s.

"The mood is very negative as the commodities’ drop and government paralysis regarding the fiscal measures increase uncertainty for companies," Luis Gustavo Pereira, an analyst at the brokerage Guide Investimentos, said from Sao Paulo. "It’s been very hard to see what are the prospects for profits and the economy in the next months."

The Ibovespa slid 2.7 percent to 45,872.91 at the close of trading in Sao Paulo, extending its weekly drop to 4.7 percent. Brazilian stocks are trading at 10.7 times estimated earnings, according to data compiled by Bloomberg. Fifty-eight of its 63 stocks declined Friday. Vale dropped 5.8 percent, Bradesco retreated 3.7 percent, and Itau fell 2.7 percent.

Petrobras, as Petroleo Brasileiro is known, declined 4 percent. West Texas Intermediate crude for January delivery slumped 3 percent to $41.77 per barrel. The company has said that its pre-salt oil reserves are viable with oil prices at $48 per barrel.

Ruling-party senator Delcidio Amaral and Andre Esteves, Chairman of Grupo BTG Pactual, the biggest investment bank in Latin America, were arrested on Wednesday as part of a graft probe. Amaral’s arrest has delayed voting on a new fiscal target that would allow the government to end 2015 with a deficit of 119 million reais ($31.6 million) before interest payments. If the measure isn’t passed, it would mean the government won’t be in compliance with budget rules, which could spark a new round of impeachment requests against Rousseff.

BTG fell 3.6 percent, extending its losses this week to 25 percent.

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