- Lender Itau contributed the most to stock gauge's retreat
- Miner Vale tumbles amid a selloff in commodity prices
The Ibovespa posted the biggest loss among major stock markets after the Brazilian government attempted to block efforts to impeach President Dilma Rousseff amid a widening corruption scandal.
Brazil’s stocks retreated from a nine-month high after the attorney general’s office asked the Supreme Court to annul the ouster process in Congress and suspend a key vote in the lower house. Lender Itau Unibanco Holding SA contributed the most to the benchmark gauge’s decline, while oil producer Petroleo Brasileiro SA halted a five-day rally. Vale SA, the largest iron-ore producer, slumped 6.8 percent.
Brazilian shares have led gains among the major equity markets this year on speculation that a change in government would pave the way for reforms that could pull Latin America’s largest economy from its deepest recession in a century. Rousseff’s political future hangs on a vote that will take place Sunday in the lower house of Congress. Many analysts say it will be difficult for the government to block the motion in the Senate if it passes through the lower house.
"There has been a lot of optimism regarding the impeachment process, but we should be prepared for some volatility as the process is not so smooth," said Pedro Paulo Silveira, chief economist at brokerage Nova Futura in Sao Paulo.
The Ibovespa retreated 1.4 percent to 52,411.02 at the close of trading in Sao Paulo, after earlier gaining as much as 1 percent. The decline trimmed this year’s rally in stocks to 21 percent, while still leaving the index near its most expensive level since May 2015. The gauge traded at 13.24 times estimated earnings, or 24 percent above its five-year average, according to data compiled by Bloomberg. Itau slumped 2.9 percent and Petrobras declined 3.7 percent.
Traders pushed down the value of Brazilian shares after the local exchange-traded fund posted the largest inflow since its 2008 inception on Wednesday. So far this month, investors have poured 91 million reais ($26 million) into the iShares Ibovespa Fundo de Indice, after withdrawing 3.3 billion reais in the previous two months.