Ibovespa Drops as Petrobras Plunge Outweighs Consumer Stock Gain

The Ibovespa fell as state-run oil producer Petroleo Brasileiro SA sank on concern that government-ordered fuel subsidies will make it difficult to fund its business plan, outweighing gains in consumer stocks.

The MSCI Brazil/Energy Index sank the most among 10 industry groups. Retailer Cia. Hering advanced as some companies that depend on domestic consumption rose amid speculation the central bank will slow the pace of interest-rate increases at the end of a two-day meeting today. Embraer SA climbed after the planemaker’s earnings exceeded analysts’ forecasts.

The Ibovespa lost 0.2 percent to 46,599.21 at the close of trading in Sao Paulo as 34 stocks climbed and 38 dropped. The real slipped 0.4 percent to 2.3505 per U.S. dollar at 5:21 p.m. local time. Petrobras, as Petroleo Brasileiro is known, fell 3.5 percent to 13.68 reais. The oil producer has been selling imported gasoline and diesel below cost to help the government fight inflation, eroding profits as the company plans $220.6 billion of investments to develop new oil discoveries.

“Petrobras’s current business model is not sustainable,” Otavio Vieira, a partner at hedge fund Fides Asset Management, said by phone from Rio de Janeiro. “The government is using it for inflation control, and that hurts shareholders.”

The central bank will raise the target lending rate by a quarter-percentage point today to 10.75 percent, according to the median estimate of economists surveyed by Bloomberg. Policy makers had increased borrowing costs by a half-percentage point for six consecutive meetings.

Embraer Results

Hering rose 2.3 percent to 24.90 reais.

Embraer advanced 4.2 percent to 20.76 reais. The planemaker reported adjusted earnings per share of 83 centavos for the last three months of 2013, beating the average estimate among analysts surveyed by Bloomberg of 72.6 centavos.

“Strong fourth-quarter results and better-than-expected guidance for 2014 will likely lead us to revise our estimates upwards,” Itau BBA analysts led by Renato Salomone wrote in a research note today.

The Ibovespa’s 10-day volatility, a measure of price swings, touched a five-month high on Feb. 13. The gauge has tumbled 17 percent from a bull-market high on Oct. 22 as inflation exceeded policy makers’ target 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 today was 5.97 billion reais, data compiled by Bloomberg show. That compares with a daily average of 6.4 billion reais this year, according to data from the exchange.

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