Bovespa Index Drops as Gafisa Tumbles on Brazilian Rate Outlook

The Bovespa index retreated after a two-day rally that was the biggest in the world amid speculation that Brazilian policy makers will increase borrowing costs to tame inflation, curbing demand for stocks.

Homebuilder Gafisa SA fell the most in a week, leading declines among companies that sell on credit. OGX Petroleo & Gas Participacoes SA, the oil producer controlled by billionaire Eike Batista, sank after posting its biggest one-day surge in more than four years yesterday. Farm company Vanguarda Agro SA and paper maker Klabin SA followed commodities lower.

The Bovespa declined 0.7 percent to 58,432.75 at the close of trading in Sao Paulo. The gauge rose 5.2 percent in the two days through yesterday, the biggest rally in that period among 94 major equity benchmarks, according to data compiled by Bloomberg. It gained 2.7 percent this week, the best performance since the five days ended Nov. 23.

“Despite the gains we’ve seen in the past two days, the main problems are still there,” Clodoir Vieira, an economist at Sao Paulo-based brokerage Souza Barros Corretora, said in a phone interview. “The economic recovery is still weak and inflation remains worrisome.”

Consumer prices as measured by the IPCA index rose 0.60 percent in February, the national statistics agency said today in Rio de Janeiro, which compares with the median estimate of 0.49 percent among 44 economists surveyed by Bloomberg.

OGX tumbled 8.5 percent to 3.11 reais after yesterday surging 16 percent. Batista’s holding company EBX Group Co. signed an agreement with Grupo BTG Pactual to co-run a strategic and financial management committee for his six publicly traded companies, according to a March 6 statement.

Klabin, Vanguarda

Thirty-six stocks declined on the Bovespa today while 33 gained. The real appreciated 0.7 percent to 1.9442 per U.S. dollar.

Klabin dropped 2.7 percent to 13.50 reais. Vanguarda retreated 4.2 percent to 46 centavos. Gafisa fell 4 percent to 4.05 reais.

Petroleo Brasileiro SA, Brazil’s state-run oil company, slid 3.1 percent to 18.37 reais. The stock gained 8.7 percent this week after raising diesel prices by 5 percent, helping to reduce losses from selling fuel at a discount as part of a government policy to fight inflation.

“The increase in diesel price may be a sign of a broader change in economic policy, it could be a sign that the government won’t use Petrobras as a tool to fight inflation anymore,” Otavio Vieira, who helps manage 270 million reais as a partner at hedge fund Fides Asset Management, said by phone from Rio de Janeiro. “This type of intervention was driving investors away from the stock market, and the government may have noticed that and is now trying to change.”

Lojas Americanas, B2W

Lojas Americanas SA, Brazil’s second-largest retailer by market value, gained 2 percent to 18.25 reais after posting fourth-quarter net income of 248.1 million reais, exceeding analysts’ estimates. Its online unit B2W Cia. Global do Varejo advanced 5.1 percent to 15.57 reais.

The Bovespa has dropped 7.7 percent from this year’s high on Jan. 3 amid concern accelerating inflation may curb Brazil’s economic recovery and the government’s interventionist policies will hurt profits in industries including utilities and energy. The MSCI BRIC Index of shares in Brazil, Russia, India and China has slid 1.7 percent over the same period.

Brazil’s benchmark equity gauge trades at 11.9 times analysts’ earnings estimates for the next four quarters, compared with 10.9 for the MSCI Emerging Markets Index of 21 developing nations’ equities, data compiled by Bloomberg show.

Trading volume for stocks in Sao Paulo was 7.69 billion reais today, data compiled by Bloomberg show. That compares with a daily average of 7.59 billion reais this year through March 6, according to data compiled by the exchange.

Before it's here, it's on the Bloomberg Terminal.