Ibovespa Declines Most in World as Real Slumps on Election Poll

Brazilian stocks and the real dropped the most among major counterparts after a poll indicated President Dilma Rousseff would win in a possible election runoff.

The Ibovespa decreased 1 percent to 57,419.96 at the close of trading in Sao Paulo as state-run oil producer Petroleo Brasileiro SA sank. The real fell 0.3 percent to 2.2194 per dollar, the most among 31 major currencies tracked by Bloomberg. Swap rates, a gauge of expectations for interest-rate moves, rose nine basis points, or 0.09 percentage point, to 11.14 percent on the contract due in January 2017.

When pitted against all potential candidates in the October election, Rousseff would gain 38 percent of votes, down from 39 percent last month, according to the July 18-21 poll from Ibope, which has a margin of error of plus or minus 2 percentage points. Aecio Neves is running second with 22 percent, compared with 21 percent in June.

“Investors are watching closely the election polls, and from the latest numbers, people were probably expecting a steeper decline in Dilma’s support,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA in Sao Paulo, said in a telephone interview. “Stocks have been rising in the past few days because of this speculation, and today there’s some profit taking.”

If no candidate has more votes than all other opponents combined, the two front-runners go against each other in a second vote. In a runoff between Rousseff and Neves, she would have a lead of 8 percentage points, the poll indicated. Datafolha and Sensus surveys last week showed Rousseff’s advantage over Neves in a second round was within the margins of error, making the outcome too close to call.

Petrobras Slumps

Petrobras, as Petroleo Brasileiro is known, declined 3.8 percent to 20.26 reais after rallying 22 percent in the past 10 days, its longest winning streak since 2003. Power utility Centrais Eletricas Brasileiras SA slid 3.8 percent to 6.58 reais.

Brazil’s benchmark equity gauge has rallied 28 percent from this year’s low on March 14 as Petrobras jumped on speculation that a change in government will reduce intervention in state-owned companies.

The real pared its rally this year to 6.4 percent, remaining the biggest among 24 emerging-market currencies.

“There is always a negative reaction for the real when polls show Rousseff has a chance of being re-elected,” Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a phone interview.

Currency Swaps

To support the real and limit import price increases, Brazil sold $198.7 million of currency swaps today and rolled over contracts worth $346.4 million. The central bank plans to keep offering $200 million in swaps each business day at least through the end of the year.

Policy makers held the target lending rate at 11 percent for a second straight meeting on July 16 after nine consecutive increases to curb accelerating inflation.

Economists lowered their forecast for inflation in Brazil in 2014 to 6.44 percent, according to the median of about 100 estimates in a central bank survey published July 21. They cut their growth estimate for an eighth consecutive week, forecasting a 0.97 percent expansion of gross domestic product following a 2.5 percent increase in 2013.

The central bank, which maintains an annual inflation target of 4.5 percent plus or minus 2 percentage points, is due to publish tomorrow minutes of last week’s policy decision.

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