Ibovespa Falls Second Day as Vale Sinks on China Growth Concern

The Ibovespa dropped for a second straight day as iron-ore producer Vale SA led declines in exporters amid concern that new banking regulations will curb economic growth in China, Brazil’s top trading partner.

Bradespar SA, the Banco Bradesco SA unit that is part of the group controlling Vale, was the worst performer on the MSCI Brazil/Materials Index. Gafisa SA led losses among homebuilders. Clothing retailer Lojas Renner SA climbed after Banco BTG Pactual raised its recommendation to buy. The MSCI Brazil/Consumer Staples index rose the most since Nov. 18.

Brazil’s main equity index fell 1.1 percent to 50,430.02 at the close of trading in Sao Paulo, erasing a 1 percent rally. The real climbed 0.2 percent to 2.3742 per U.S. dollar at 5:28 p.m. local time.

“The main threat for the Brazilian stock market in 2014 is the developments in China,” Felipe Rocha, an analyst at brokerage firm Omar Camargo Investimentos, said by telephone from Curitiba, Brazil. “There’s concern about the state of the real estate industry there, about the banking system, and there’s uncertainty on how all these will affect growth.”

China’s Cabinet imposed new controls on the shadow-banking industry with an order that targets off-the-books loans and shores up enforcement of current rules, according to three people familiar with the matter who asked not to be named because the plan hasn’t been made public.

Vale, Petrobras

Vale, whose main export market is China, fell 2.2 percent to 30.90 reais. Bradespar lost 2.7 percent to 23.21 reais. Gafisa retreated 3.5 percent to 3.54 reais.

The Brazilian sovereign rating may be cut before this year’s October elections, newspaper O Estado de S. Paulo reported on its website today, citing Standard & Poor’s director Joydeep Mukherji.

Petroleo Brasileiro SA, as the state-run oil producer is known, plunged 2.8 percent to 16.16 reais, contributing most to the Ibovespa’s decline.

Brewer Ambev SA added 3.2 percent to 17.33 after Morgan Stanley raised its recommendation on the stock to buy. The MSCI Brazil/Consumer Staples Index advanced 2.1 percent.

Renner climbed 2 percent to 60.16 reais. The clothing retailer’s operations are “consistently superior” when compared with its competitors and should start benefiting from recent investments aimed at expanding its business and making it more efficient, BTG Pactual analysts Fabio Monteiro and Thiago Andrade wrote in a research note to clients today.

Rate Outlook

Brazil’s benchmark gauge declined 27 percent in dollar terms in 2013, the worst performance among the world’s 20 biggest equity indexes tracked by Bloomberg, as inflation exceeded the government’s target for a third consecutive year. Policy makers are forecast to boost the benchmark lending rate by 0.5 percentage point to 10.5 percent this year after lifting it by 2.75 percentage points in 2013, according to the median forecast in a central bank survey of about 100 economists published yesterday.

Trading volume of stocks in Sao Paulo was 6.27 billion reais today, according to data compiled by Bloomberg. That compares with a daily average of 7.42 billion reais in 2013, according to data available from the exchange.

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