Brazil’s Stocks Join Global Rout Amid Renewed Political Tension

  • Itau, Bradesco among biggest contributors to Ibovespa’s drop
  • Petrobras falls as former minister arrested in Carwash probe

The Ibovespa fell as Brazil’s biggest banks joined a global rout in the industry and local political tensions raised concern that the government may struggle to drive its economic agenda through Congress.

Lenders Banco Bradesco SA and Itau Unibanco Holding SA were among the biggest contributors to the benchmark equity index’s decline as financial stocks worldwide slumped on speculation mounting legal bills may force Deutsche Bank AG to raise capital. State-controlled oil producer Petroleo Brasileiro SA dropped, bucking crude’s rally, after Brazilian police arrested Antonio Palocci Filho, who served as finance minister and chief of staff under former Presidents Luiz Inacio Lula da Silva and Dilma Rousseff, as part of the probe into a corruption scheme in the company.

While Brazil’s stocks have gained 34 percent this year on bets that a change in government would make it easier to pass measures to win back investor confidence and fight the country’s recession, the escalation of the so-called Carwash graft scandal is seen as a risk to political efforts. The negative mood in international markets, also fueled by the presidential race in the U.S., is increasing aversion to riskier assets such as emerging-market stocks.

"Politics here and abroad is weighing over stocks today," said Jason Vieira, chief economist at Infinity Asset Management in Sao Paulo.

The Ibovespa fell 1.1 percent to 58,053.53 at the close of trading in Sao Paulo as 49 of the index’s 58 stocks dropped. Itau declined 0.8 percent, Bradesco retreated 1.2 percent and Petrobras, as Petroleo Brasileiro is known, fell 2.1 percent. Brent crude advanced 2.4 percent to $46.99 per barrel in London and the Bloomberg Commodity Index climbed 0.6 percent.

Drugstore chain Profarma Distribuidora de Produtos Farmaceuticos SA posted its biggest gain in two months after agreeing to acquire Rosario stores from competitor Brasil Pharma SA. For-profit college operator Kroton Educacional SA rose 1.1 percent, the best performer on Ibovespa.

— With assistance by Ney Hayashi Cruz

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