Brazil’s Stocks Fall as Political Scandal Returns to Spotlight

  • Newspaper reports top minister plotted to end corruption probe
  • State-controlled Petrobras contributes most to Ibovespa’s drop

The Ibovespa fell to the lowest in six weeks after a report implicated a minister of the two-week old government in the country’s biggest corruption scandal.

Newspaper Folha de S. Paulo reported it had access to recordings in which Planning Minister Romero Juca and a former executive linked to state oil company Petroleo Brasileiro SA discussed how to prevent the graft probe dubbed Carwash from proceeding. Brazil’s benchmark equity index gained 13 percent this year on speculation that the impeachment of President Dilma Rousseff would usher in a new government able to break the country’s political paralysis and take measures to support growth. Rousseff was forced to temporarily step down this month, making Michel Temer acting president.

"This is just adding more tension to a situation that’s already serious enough," said Jason Vieira, the chief economist at Infinity Asset Management in Sao Paulo. "We are paying attention to how Temer will solve the first crisis. This wouldn’t be happening if he had formed his team with technocrats, as the market had expected."

The Ibovespa lost 1.5 percent to 48,955.2 at 10:53 a.m. in Sao Paulo as all but seven of its 59 stocks declined. Petroleo Brasileiro contributed the most to the index’s drop. The real weakened 1.1 percent, the most in emerging markets, to 3.5619 per U.S. dollar.

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