Ibovespa Falls as Itau Drops on Chile Acquisition

The Ibovespa fell for the fourth time in five sessions on speculation the U.S. Federal Reserve will decide today to further taper stimulus and concern that a weaker Brazilian real will cause inflation to accelerate.

Itau Unibanco Holding SA contributed the most to the gauge’s drop after the lender said it’s buying Corpbanca SA in Chile. Gafisa SA led declines among homebuilders. Vale SA, the world’s largest iron-ore producer, rallied after the company sold local bonds yesterday.

The Ibovespa retreated 0.5 percent to 47,612.54 at 3:39 p.m. in Sao Paulo with 54 of its 72 member stocks declining. The real depreciated 0.6 percent to a five-month low of 2.4370 per dollar on speculation the Fed will pare back monthly bond purchases by another $10 billion today.

“Emerging markets are suffering a lot with the reduction in stimulus by the Fed, as the devaluation of their currencies shows,” Eduardo Velho, the chief economist at INVX Global Partners in Sao Paulo, said in a phone interview. “A weaker real means higher inflation and the Brazilian central bank will have to increase its benchmark interest rate further, which is negative for stocks.”

Brazil’s central bank on Jan. 15 raised its benchmark interest rate by half a percentage point to 10.50 percent. Annual inflation slowed through mid-January to 5.63 percent from the prior 5.85 percent pace and 6.67 percent in mid-June, the national statistics agency said Jan. 23.

Itau Acquisition

Gafisa slumped 5.1 percent to 3.14 reais as the BM&FBovespa Real Estate Index sank to the lowest since July 2009. PDG Realty SA Empreendimentos e Participacoes tumbled 2.8 percent to 1.73 reais.

Itau fell 2 percent to 29.45 reais. The lender, Latin America’s biggest by market value, agreed to buy Corpbanca in a deal worth at least $2.2 billion in cash and stock. Itau will inject $652 million of capital and merge its Chilean and Colombian units with Corpbanca, according to a statement today.

“The market environment these days is so negative that investors don’t even stop to think if the deal itself is good or bad according to the bank’s strategy,” Rodolfo Amstalden, an analyst at equity research firm Empiricus Research, said in a phone interview from Sao Paulo. “They just believe that companies should take a more conservative approach now, avoiding any kind of disbursement.”

Vale Gains

Vale jumped 3.4 percent to 29.87 reais, the highest intraday level since Jan. 20.

“There is speculation a bond sale concluded yesterday had a huge demand and that the fourth-quarter profit report will be surprisingly good,” Sandro Fernandes, a trader at the brokerage firm Geraldo Correa, said in a phone interview from Belo Horizonte, Brazil. “We’ve seen a bunch of foreign investors running to buy the stock.”

Vale said in a regulatory filing on Dec. 15 that it was planning to sell 750 million reais in seven-year to fifteen-year local bonds to fund railway in the North of Brazil. The company is scheduled to report its earnings results on Feb. 26.

Pulp producer Suzano Papel e Celulose SA SA rallied on the outlook for higher export revenue as the real dropped. Shares added 3.5 percent to 9.54 reais, the highest intraday level since Sept. 18. Rival Fibria Celulose SA climbed 4.3 percent to 26.75 reais.

The Ibovespa has tumbled 16 percent from a bull-market high on Oct. 22 as inflation exceeded policy makers’ target for a third consecutive year and concern mounted that higher government spending will lead to a reduction in the country’s credit rating.

Trading volume of stocks in Sao Paulo was 5.28 billion reais yesterday, which compares with a daily average of 6.19 billion reais this month, according to data from the exchange.

(Corrects value of Itau transaction in seventh paragraph.)
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