Brazil's Stocks Drop as Itau Slumps Amid Gloomy Economic Outlook

  • Lender falls after posting disappointing quarterly results
  • Commodity producers follow decline in raw-material prices

The Ibovespa posted its longest losing streak in two months as disappointing factory data and corporate profits highlighted the weakness of Brazil’s economy and concern the country will struggle to rebound from its worst recession in a century.

Itau Unibanco Holding SA, Latin America’s biggest bank by market value, contributed the most to the gauge’s decline after earnings fell for the first time in three years amid higher provisions to cover bad loans. Bus maker Marcopolo SA slumped as net income trailed estimates by 20 percent. Brazil’s industrial production rose less than forecast in March from a month earlier as business confidence remains at a record low.

"Economic data released recently are very negative and scary," Pablo Spyer, the operational director at Mirae Asset Wealth Management, said from Sao Paulo. "The crisis is still going to be more severe than everybody thinks."

Tuesday’s tumble pared a year-to-date rally to 21 percent amid bets that President Dilma Rousseff will be impeached and that a new administration will help restore confidence and win support for measures to shore up the country’s finances. While the Senate may ask the president to step down as soon as next week, investors are adopting a more cautious strategy until real improvement is seen.

The Ibovespa declined 2.4 percent to 52,260.19 on Tuesday in Sao Paulo, extending a four-day drop to 4.1 percent. Itau lost 5.8 percent and Marcopolo sank 5.7 percent. Iron-ore miner Vale SA followed metals lower, falling 6.5 percent, while state-controlled oil producer Petroleo Brasileiro SA retreated 3.8 percent. Raw-materials producers account for about 24 percent of the Ibovespa’s weighting.

The Brazilian real also declined, falling 1.8 percent to 3.5643 per dollar. Planemaker Embraer SA, which gets more than 90 percent of its revenue from exports, was among the nine Ibovespa stocks to climb Tuesday.

Brazil’s benchmark equity index is still trading at 12.8 times estimated earnings, which is 15 percent above its three-year average and 11 percent more expensive than that of the MSCI Emerging Markets index.

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