Brazilian Stocks Extend Rally as Oil Surge Bolsters Petrobras

  • State-own crude producer Petrobras leads Ibovespa gain
  • Investors weigh audit court's decision on Rousseff's accounts

Brazil’s benchmark stock index headed to its longest string of gains in more than two years as speculation that the Federal Reserve will refrain from boosting interest rates this year pushed emerging-market equities higher.

Petroleo Brasileiro SA, the oil producer known as Petrobras, followed crude higher and contributed the most to the Ibovespa’s advance. A gauge of energy stocks on the MSCI Brazil Index was the best performer among 10 industry groups. Shares of BM&FBovespa SA, the operator of the Brazilian exchange, climbed as stock-trading volumes in October topped this year’s average.

The Ibovespa gained 0.4 percent to 49,106.56 at the close of trading in Sao Paulo after switching directions at least a dozen times -- gaining as much as 0.7 percent and falling as much as 0.5 percent-- after an audit court recommended late Wednesday that Congress reject the government’s 2014 accounting practices, which could be used as legal justification to impeach Rousseff. Emerging stocks climbed after the Federal Reserve said in the minutes of its last policy meeting that “additional information confirming that the economic outlook had not deteriorated” is needed before interest rates can go up.

“The main factor for the Ibovespa to rebound are the signs that the U.S. will delay an increase in interest rates, which is making investors more willing to take on risk,” Otavio Vieira, who helps manage 250 million reais as a partner at hedge fund Fides Asset Management, said from Rio de Janeiro. “In Brazil, on the political front, there are no signs that things are improving.”

While opponents say Rousseff’s administration used illegal maneuvers to hide a budget deficit, the president’s legal team denies any impropriety. The audit court’s ruling extends Brazil’s political turmoil as parties and politicians position themselves for the fallout, according to Jason Vieira, the chief economist at Infinity Asset Management. While some investors are eager for Rousseff to leave, others are concerned that could make it much harder to pass the austerity measures needed to shore up the budget, he said. 

“The only certainty now is that we’ll still face a lot of volatility in the Brazilian market,” Vieira said from Sao Paulo, where he helps oversee 200 million reais ($51.8 million) in assets. “It’s very good that the court put a limit to the fiscal maneuvers. But now we don’t know how the government will solve its budget problems.”

Dogged by record-low popularity and a corruption scandal at the state-controlled oil company, Rousseff has been struggling to win lawmakers’ support for measures she says are needed to ward off further credit-rating cuts after Standard & Poor’s lowered the country to junk last month. Investors have adopted a wait-and-see strategy on expectations the debate over Rousseff’s accounting in 2014 could stretch on for months, according to Ari Santos, a trader at the brokerage H.Commcor.

“It’s been really hard to take any position,” Santos said from Sao Paulo. “The only thing we can do now is to watch the next episodes of this soap opera.”

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