Brazilian Stock Decline Led by Itau as Valuations Seen Pricey

  • Lender contributes most to decline after three-day rally
  • Investor optimism gives way to caution on political outlook

Brazil’s Ibovespa dropped for the first time in three days as lender Itau Unibanco Holding SA tumbled after reaching its highest valuation in three weeks.

Itau was the biggest drag on the benchmark equity index as it traded at 9.9 times estimated earnings, the most expensive since Sept. 8. Financial stocks extended losses, joining a global rout, after some funds that clear derivatives trades with Deutsche Bank AG were said to have withdrawn excess cash and positions held at the German lender in a sign they lack confidence. The depreciation of the real buoyed pulp producers Fibria Celulose SA and Suzano Papel e Celulose SA, which get most of their revenue from exports.

The Ibovespa has advanced 35 percent this year on optimism that a new government will be able to tame a political crisis and eventually pull Brazil out of its worst recession in a century. In the past six weeks, however, investors have adopted a more cautious approach to the country’s stocks as they assess the pace of the recovery and prospects for commodity producers. Average trading volume of stocks this quarter is 10 percent below that of the three months ended in June, according to data compiled by the exchange.

"There’s so much anxiety over the turnaround plan and the political scenario that the market has hit the break, waiting for more news to support allocation decisions," Paulo Henrique Amantea, an analyst at the brokerage Guide Investimentos, said from Belo Horizonte, Brazil.

The Ibovespa slumped 1.7 percent to 58,350.57 at the close of trading in Sao Paulo. Itau lost 2.5 percent as Banco Santander Brasil SA retreated 2.7 percent. Fibria, which also announced a price increase for clients in Asia, added 2 percent and Suzano rose 2.5 percent. The real weakened 1.3 percent.

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