Most Brazilian Stocks Drop as Seven-Day Rally Seen as Excessive

Most Brazilian stocks fell amid speculation that a seven-day rally that pushed valuations on the Ibovespa stock benchmark to a six-week high was excessive given signs that the economy is weakening.

Phone company Oi SA sank the most since October after securities regulators sided with controlling shareholders in a dispute over a planned merger with Portugal Telecom SGPS SA. Banco Bradesco SA rallied on speculation it will get a heavier weighting on the Ibovespa when the index is rebalanced in May.

Brazil’s main equity gauge dropped 0.4 percent to 47,965.61 at the close of trading in Sao Paulo, with 54 of its 73 stocks lower. The index, which traded yesterday at 9.5 times forecast earnings for its members, gained 7.1 percent in the prior seven sessions. The real rose 0.4 percent to 2.3029 per dollar.

“The gains in the past few days are not a sign that there’s a positive trend for equities,” Joao Pedro Brugger, who helps oversee 400 million reais as a portfolio manager at Leme Investimentos Ltda., said in a phone interview from Florianopolis, Brazil. “Prices have got so low that some people started buying again, but that was just it, just a correction.”

The Ibovespa closed yesterday at its highest since Feb. 14 on speculation this week’s cut in the nation’s credit rating by Standard & Poor’s will be the only one this year. While S&P lowered Brazil to its lowest investment grade of BBB-, it shifted the outlook to stable from negative.

“The market is giving back some of the recent gains,” Rogerio Freitas, a partner at hedge fund Teorica Investimentos, said by phone from Rio de Janeiro. “It needs new information to keep rising.”

Telecommunications Merger

Oi tumbled 11 percent to 3.19 reais in the worst performance on the Ibovespa. Controlling shareholders will be allowed to vote on a capital increase and the valuation of assets in the merger with Portugal Telecom.

Bradesco gained 2.2 percent to 29.51 reais, and competitor Itau Unibanco Holding SA added 0.9 percent to 32.73 reais. Both stocks will probably be the heaviest-weighted members on the Ibovespa, topping Vale SA and Petroleo Brasileiro SA, after the exchange starts ranking stocks by market value instead of trading volume, Banco Santander SA analyst Renata Cabral wrote in a research note to clients.

Gol Linhas Aereas Inteligentes SA rose 1.6 percent to 10.59 reais. The Sao Paulo-based airline posted an adjusted net loss of 47.8 million reais in the fourth quarter, while analysts surveyed by Bloomberg had forecast a loss of 83.6 million reais.

The Ibovespa entered a bear market March 14 after falling 20 percent from its October high through that day. The gauge has since pared the drop to 15 percent. Trading volume of stocks in Sao Paulo was 6.44 billion reais today, according to data compiled by Bloomberg. That compares with a daily average of 6.36 billion reais this year, according to data from the exchange.

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