Ibovespa Advance Pares World’s Worst Loss in 2013 as Vale Climbs

The Ibovespa climbed on the last trading day of 2013, paring the worst yearly drop among the world’s 20 biggest equity indexes, as Brazilian President Dilma Rousseff pledged to keep up the fight against inflation.

Iron-ore producer Vale SA contributed the most to the benchmark’s advance. Brookfield Incorporacoes SA led gains among homebuilders. Airline Gol Linhas Aereas Inteligentes SA climbed to a six-week high, while steelmaker Cia. Siderurgica Nacional SA rose after approving a partial spin-off of Transnordestina Logistica.

The Ibovespa advanced 0.5 percent to 51,507.16 at the close in Sao Paulo. Trading volume was 35 percent below the average of the past 30 days. The real lost 0.9 percent to 2.3604 per dollar at 5:21 p.m. local time. The benchmark gauge fell 27 percent in dollar terms in 2013, its third year of losses, as inflation exceeded policy makers’ target for a third straight year and the central bank raised the benchmark interest rate faster than any other major economy to 10 percent from a record 7.25 percent.

“It’s a cheap market, and it looks like the interest rate cycle is coming to an end,” Christopher Palmer, who oversees about $2.5 billion as the London-based director of global emerging markets at Henderson Global Investors Ltd., said by phone.

Policy makers omitted language from the statement accompanying their most recent interest-rate decision that had signaled additional half-point increases were needed to rein in consumer prices. Inflation unexpectedly accelerated to 5.85 percent in mid-December, above analysts’ 5.74 percent estimate and the 4.5 percent mid-point of the central bank’s target.

Rousseff Speech

Vale rose 1 percent to 32.73 reais. Gol gained 2.7 percent to 10.48 reais. CSN, as Cia. Siderurgica is known, climbed 0.2 percent to 14.38 reais. Brookfield rose 4.5 percent to 1.15 reais.

“We continue our constant fight against high prices,” Rousseff said in a televised speech yesterday, according to the transcript of her remarks. “If we imagine a fair and great country and fight for it, we will have it.”

The prospect of a credit-rating downgrade and presidential elections will add volatility to Brazilian stocks in 2014, Palmer said. Standard & Poor’s and Moody’s Investors Service lowered their outlooks this year on Brazil’s credit rating, which both have at two levels above junk.

“You’ve got a lot of structural inflation, and the government’s finances are deteriorating quickly,” Palmer said. “We’re entering an election year where the actions the government needs to take to bolster financial conditions are exactly the opposite actions which someone looking for re-election is likely to undertake.”

Trading Volume

The government budget deficit as a percentage of gross domestic product narrowed to 3 percent last month from 3.4 percent in October, which was the widest since 2009. Net debt to GDP fell in November to 33.9 percent, the lowest for the month since 1997 as the government took in one-time payments of back taxes and oil auction fees.

Brazil’s fiscal performance will continue to improve through next year as revenue increases and the government phases out tax breaks on some consumer goods, Treasury secretary Arno Augustin told reporters in Brasilia on Dec. 27.

The Ibovespa’s 27 percent drop in dollar terms in 2013 compares with loss of 5 percent for the MSCI Emerging Markets index through today. The Standard and Poor’s 500 index has gained 29 percent this year.

Trading volume of stocks in Sao Paulo was 4.08 billion reais today, according to data compiled by Bloomberg. That compares with a daily average of 7.43 billion reais this year, according to data available from the exchange.

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