Brazilian Stocks Fall, Led by Banks, Homebuilders; Bolsa Drops

Brazilian Stocks Fall, Led by Banks, Homebuilders; Bolsa Drops

By Paulo Winterstein and William Freebairn

Oct. 9 (Bloomberg) -- Brazilian stocks fell for a sixth day, the longest losing streak in a year, as the global economic slowdown and worsening credit crisis threaten the country's expansion.

Cyrela Brazil Realty SA Empreendimentos e Participacoes and Gafisa SA, the biggest real estate developers, led declines on the index, losing more than 13 percent each. Uniao de Bancos Brasileiros SA paced losses among lenders. Tam SA and Gol Linhas Aereas Inteligentes SA, the country's largest airlines, dropped after Deutsche Bank AG said passenger traffic growth was ``timid'' in September. Tele Norte Leste Participacoes SA and Brasil Telecom Participacoes SA fell on concern tighter credit will raise the costs of a merger between the phone companies.

The Bovespa Index dropped 1,513.24, or 3.9 percent, to 37,080.30, extending its losses for the year to 42 percent. Mexico's Bolsa index slid 0.9 percent. The BM&FBovespa MidLarge Cap index dropped 4.4 percent. The BM&FBovespa Small Cap index fell 3.3 percent. Mexico's Bolsa Index fell 1.8 percent, while Chile's Ipsa dropped 1.7 percent. The Dow Jones Industrial Average fell below 9,000 for the first time since 2003.

``We're importing the crisis, and also this market volatility,'' said Andre Caminada, partner at Victoire Finance Capital in Sao Paulo, which manages about $130 million in assets.

Airlines Fall

Tam, the biggest Brazilian carrier, fell 8.3 percent to 27.60 reais. Gol fell 8.1 percent to 8.76 reais.

A global cooling of economic growth will also lead to slower expansion in Brazil, which ``should hurt the demand for aviation services,'' Deutsche Bank analyst Bernardo Carneiro wrote. The weaker real also will likely cut third-quarter profit, with ``record high financial losses (all non-cash) of about $450 million reais'' due to recent drop in the real. The real had lost 18 percent in the past six days.

The cost of borrowing in dollars for three months in London soared to the highest level this year as coordinated interest- rate reductions worldwide failed to revive lending among banks for any longer than a day.

Unibanco, as Brazil's third-biggest non-government bank is known, dropped 7.7 percent to 14.21 reais. Banco Bradesco SA, the biggest non-state bank, slid 7.2 percent to 23.49 reais.

Tele Norte voting shares dropped 9.2 percent to 29.50 reais, the lowest price in three weeks. Preferred shares of the company whose parent agreed to buy Brasil Telecom Participacoes SA fell 7.1 percent to 27.41 reais. Brasil Telecom Participacoes fell 12 percent to 13.55 reais, while operating unit Brasil Telecom SA tumbled 15 percent to 10.90 reais.

``The current credit scenario makes it more complicated for Telemar to borrow money for the tag-along of Brasil Telecom shares,'' Peter Lyons, an analyst at Oscar Gruss & Son Inc., said in a phone interview from in New York.

Homebuilders Fall

Cyrela dropped 14 percent to 11.42 reais. Gafisa dropped 17 percent to 15.05 reais.

Brazil's central bank may raise rates at its next meeting, Caminada said.

``The central bank wants to show that the market is healthy, that this isn't a matter of insolvency in Brazil, but a question of liquidity. The rates will likely go up because inflation continues to be an important concern,'' he said in a phone interview.

Consumer, construction and wholesale prices as measured by the IGP-M index rose 0.55 percent during the first ten days of the data collection period, according to the Getulio Vargas Foundation. Economists were expecting a 0.19 percent climb, according to Bloomberg data.

``For now we are not betting on an interruption of the tightening cycle for this year yet,'' UBS AG chief Latin America economist Eduardo Loyo said on a conference call today. ``If the economic contraction is stronger, that may lead the central bank to revise its flight plan and end up with a shorter tightening cycle than planned.''

Bolsa Drops

Mexico's Bolsa fell for a sixth day, led by Cemex SAB, the largest cement producer in the Americas, which dropped the most in 11 years after Citigroup Inc. cut its rating, citing the global credit crisis.

Cemex was reduced to ``hold'' from ``buy''. Citigroup said a global credit freeze could raise borrowing costs and slow construction spending.

Many Mexican companies fell on concern over their debt in dollars as the peso continued a series of record low closing values. The peso has dropped 19 percent during its seven-session slide.

Empresas ICA SAB, Mexico's largest construction company, fell 11 percent, erasing earlier gains, even as it said it has financing for 90 percent of its projects and is protected from swings in the peso.

Cemex fell 15 percent to 10.52 pesos. ICA declined 1.97 pesos to 16.02 pesos.

In other Latin American markets, Argentina's Merval dropped 5.3 percent, Colombia dropped 2.3 percent and Peru's IGBVL plunged 8.8 percent. The MSCI Latin American index fell 1.3 percent. The index has lost a third of its value this month in the steepest seven-day drop since the index began in 1987.

To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; William Freebairn in Mexico City wfreebairn@bloomberg.net.

Last Updated: October 9, 2008 16:59 EDT