Brazil Stocks, Real Advance as Fed Outweighs Concern Over Lula

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  • Global assets rise as Fed signals slower pace of rate increase
  • Former president Lula to become chief of staff amid probe

Lula to Be Rousseff's Chief of Staff in Brazilian Cabinet

Brazil’s stocks and the real joined global gains as the Federal Reserve signaled a slower path for future rate increases, outweighing concern Latin America’s largest economy will boost spending after former President Luiz Inacio Lula da Silva was appointed as chief of staff.

The Ibovespa was the biggest gainer among the world’s largest markets after the U.S. central bank kept the target range for the benchmark federal funds rate at 0.25 percent to 0.5 percent, bolstering appetite for riskier assets. An earlier plunge had sent the stock gauge to the worst-performing spot on Wednesday as Lula’s nomination to the Cabinet fueled concern that a change in government could become harder as he could boost expenses to keep his successor Dilma Rousseff in power. The real also erased losses.

The real rose 0.7 percent to 3.7425 per dollar at the close of trading, after dropping as much as 2.3 percent. The Ibovespa added 1.3 percent to 47,763.43 as state-controlled oil producer Petroleo Brasileiro SA climbed with oil. Brazilian assets also rebounded from Wednesday’s lows on bets that Lula’s former central bank chief Henrique Meirelles, who presided over faster growth and slower inflation, would take over Alexandre Tombini’s post in case he leaves. Valor Economico newspaper reported that Tombini may leave his post, signaling Lula could be exerting a greater influence on policy.

“Investors now fear that there will be even more intervention in the economy,” said Camila Abdelmalack, the chief economist of brokerage CM Capital Markets in Sao Paulo. “That means more spending in a moment we can’t afford it.”

After Brazilian stocks and currency had rallied this year on speculation a change in government was getting closer, creating an opening for officials to pull the country out of its worst recession in a century, sentiment turned bearish earlier this week on signs Rousseff was digging in her heels to stay in power. Lula’s appointment also spurred concern that he would seek to use government spending to stimulate growth after a record fiscal gap already resulted in the country losing its investment-grade credit rating.

“The question is what the economic policy of this government will be,” said Eduardo Longo, who helps manage 23 billion reais as a fixed-income portfolio manager at Quantitas, in Porto Alegre, Brazil. “Nothing is clear at this point. The only thing that is certain is that things will change. And, in my opinion, to the worse.”

— With assistance by Yasmine Batista, Ben Bartenstein, and Marisa Castellani

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