• Moody's put the country's credit rating under review
  • State-controlled oil producer Petrobras drops after rating cut

Brazilian stocks fell after Moody’s Investors Service signaled the country’s credit rating may be cut to junk, highlighting concern about forecasts calling for the longest recession since the 1930s.

State-controlled oil producer Petroleo Brasileiro SA, whose credit rating was reduced to three levels below investment grade by Moody’s on Wednesday, declined. Lender Itau Unibanco Holding SA contributed the most to the benchmark equity index’s drop. Moody’s cast doubt on Brazil’s ability to shore up its budget as political turmoil and a corruption scandal fuel gridlock in Congress.

"It’s inevitable that we lose our investment grade status," Alvaro Bandeira, an economist at Banco Modal, said from Rio de Janeiro. "It will be very hard to attract investors now to the country, considering the political and economic scenarios."

Moody’s warning comes almost two months after Standard & Poor’s cut Brazil to junk. Since then, forecasts for an economic contraction this year and next have gotten worse, and a top lawmaker has moved to impeach President Dilma Rousseff, setting up a process that could take months and further distract legislators from acting on proposed fiscal reforms.

The Ibovespa retreated 0.4 percent to 45,911.37 at 11:08 a.m. in Sao Paulo. Three stocks fell for every one that gained on the index. Petrobras, as Petroleo Brasileiro is known, lost 2.2 percent as Itau slid 1.4 percent.

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