Brazil Stocks Plunge Most in Three Months on Europe Debt Slump

Brazil stocks sank the most in three months and the real weakened as concern grew that a faltering global recovery will leave developing nations vulnerable.

Every company in the 63-stock Bovespa index retreated as Tam SA, LLX Logistica SA Rossi Residencial SA tumbled more than 7 percent. Vale SA dropped the most since July as metals prices plunged. Petroleo Brasileiro SA sank to its lowest level in five months. The real extended this year’s decline against the dollar to 7.1 percent, the worst performance among 16 major currencies.

“Markets are being massacred for a good reason,” said Carlos Camacho, who helps manage the equivalent of about $2.1 billion at GAP Asset Management in Rio de Janeiro. European countries with growing public debt “may need some sort of a bailout and nobody right now has the breathing room to finance a bailout. That raises the question of risk in the financial system all over again.”

The Bovespa index fell 4.7 percent to 63,934.01, tracking declines in Spain, Portugal and eastern Europe on speculation governments will struggle to handle budget deficits as spending cuts in Greece spurred strikes. The drop is the biggest since Oct. 28. The BM&FBovespa Small Cap index fell 4 percent to 1,114.95. The MSCI Latin America Index fell 5.5 percent. The real slid for a second day, losing 1.3 percent to 1.8769 per dollar.

Copper and oil dropped in New York as the dollar gained and a worldwide drop in stocks bolstered skepticism that the economic recovery will be sustained. The Bovespa’s drop today was exceeded only by benchmark indexes in Spain and Portugal among 94 market gauges tracked by Bloomberg.

U.S. Jobs Data

U.S. equities extended the global slide as initial applications for unemployment insurance unexpectedly increased to 480,000 last week and companies from MasterCard Inc. to Monster Worldwide Inc. reported earnings that trailed analyst estimates.

The Bovespa has dropped 6.8 percent this year on concern developed countries may begin to end some stimulus efforts and after China, Brazil’s biggest trading partner, curbed bank lending to slow its economy and contain inflation.

Gol Linhas Aereas Inteligentes SA sank 4.8 percent to 23.05 reais. Airport traffic growth in Latin America slowed for a second month in December, expanding at the slowest rate since August, the Airports Council International reported today.

Airlines

Tam, Brazil’s biggest airline, dropped 7.9 percent to 32.57 reais. Multiplus SA, Tam’s frequent-flier unit, is raising 723.9 million reais ($386 million) by selling 45.2 million new voting shares for 16 reais each, including the so-called over- allotment. That’s less than the estimated range of 18 to 24 reais each, according to data posted on the Web site of Brazil’s securities regulator, showing buyers were able to extract bigger concessions.

Rossi, a homebuilder, lost 7.7 percent to 13.39 reais. ALL, Brazil’s biggest rail operator, dropped 4.9 percent to 15.50 reais.

Petrobras, the government-controlled oil company, slid 5.1 percent to 32.30 reais as crude oil tumbled the most in six months. Vale, the world’s biggest iron ore miner, slid 5.2 percent to 41.25 reais as the Bloomberg Base Metals 3-Month Price Commodity Index lost 2.6 percent.

Yields on Brazil’s most traded interest-rate futures contract fell the most in almost two months after minutes from a central bank meeting fell short of indicating policy makers are ready to raise the benchmark rate at their next meeting in March.

Interest Rates

The bank’s board, led by President Henrique Meirelles, voted unanimously last week to hold the overnight rate at 8.75 percent, as forecast by all 43 economists surveyed by Bloomberg.

A rebound in domestic demand is “reducing the margin of idleness in the factors of production,’ policy makers said in the minutes of their Jan. 26-27 meeting published today on the central bank’s Web site. “Monetary policy will be promptly adjusted to the circumstances,” should threats to the inflation target increase.

“While the minutes clearly recognize the risks to the inflation outlook of an economy seeing a rapid recovery after a rather mild recession, there is no tone of urgency or clear sign that policy is set to be tightened,” wrote Tony Volpon, a New York-based Latin America strategist at Nomura Holdings Inc., wrote in an e-mail to clients today.

The tone of the notes left unclear whether they’d raise the rate next month, according to Arthur Carvalho, chief economist of Ativa Corretora in Rio de Janeiro.

The Bovespa index surged 83 percent in 2009 as increased domestic demand, government stimulus plans and rising prices for Brazil’s commodity exports helped pull the economy out of recession faster than most countries. It trades for 12.39 times this year’s estimated earnings after falling 9.6 percent from a 19-month high on Jan. 6, according to Bloomberg data. That’s less than 14.8 times for Mexico’s Bolsa and 17.28 times for Chile’s Ipsa.