Bovespa Stock Index Increases as Steelmakers Rally Blunts Growth Concerns

The Bovespa stock index gained for a second day as steelmakers rallied, offsetting concerns that Brazil will face higher inflation and lower growth than previously expected.

Cia. Siderurgica Nacional SA, Brazil’s third-biggest steelmaker, gained on bets that prices for the metal will climb. Usinas Siderurgicas de Minas Gerais SA rose on speculation a rival plans to buy a stake. Homebuilder Cyrela Brazil Realty SA Empreendimentos e Participacoes fell the most since October 2009 after reducing its sales estimates for 2011 and 2012, adding to concerns that rising borrowing costs will hurt demand.

The Bovespa stock index advanced 0.7 percent to 67,169.25 at the close of Sao Paulo trading at 4:15 p.m. New York time. It fell as much as 0.9 percent earlier. Forty-four stocks rose on the index, while 21 fell. The real strengthened 0.3 percent to 1.66 per U.S. dollar.

“Steelmakers are gaining on bets they’ll be able to fulfill the demand that will not be met by Japanese producers,” said Felipe Casotti, who helps manage 1.2 billion reais ($722.8 million) at Maxima Asset Management in Rio de Janeiro.

At least five “big” Japanese steel mills could be shut for the next six months following last week’s earthquake and tsunami, said Raphael Biderman, a Sao Paulo-based analyst at Bradesco BBI, citing a report from the Steel Index in a note to clients.

Cia. Siderurgica, known as CSN, gained 2.3 percent to 26.40 reais, the most since Feb. 16.

Usiminas
Voting shares of Usinas Siderurgicas, known as Usiminas, jumped 9.6 percent to 31.55 reais, the most since December 2008, and preferred shares rose 2.1 percent to 21.52 reais. Investors are wagering Gerdau SA, Latin America’s largest steelmaker, will acquire part of the company, according to e-mails to clients today from Bank of America Corp. and JPMorgan Chase & Co.

Press officials at Gerdau and an outside agency representing Usiminas, who asked not to be identified because of internal policies, didn’t immediately comment.

Gerdau gained 3.7 percent to 21.82 reais.

Economists covering the Brazilian economy cut their growth forecast for next year for the first time in 12 months on bets that policy makers will need to slow the economy to cool inflation running at a 26-month high.

GDP
Brazil’s gross domestic product will expand 4.45 percent next year, down from a week-earlier forecast of 4.5 percent, according to the median forecast in a March 11 central bank survey of about 100 economists published today. The economists also cut their 2011 GDP growth forecast for a third straight week, to 4.1 percent from 4.29 percent the previous week, the survey found.

“With weak momentum coming from last year, and preliminary first-quarter data on the weak side, we decided to revise down our full-2011 growth forecast,” said Joyce Chang, an analyst at JPMorgan Chase & Co., in a note to clients. A “tight labor market and strong wage growth, combined with higher commodity prices” are likely to keep inflation running at higher rates this year, said Chang.

Consumer prices will rise 5.82 percent this year, compared with a week-earlier forecast of 5.78 percent, according to the central bank survey. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

Policy makers will increase the benchmark interest rate 50 basis points to 12.25 percent at the April 19-20 policy meeting, according to the survey.

Cyrela tumbled 6.5 percent to 15.15 reais. Gafisa SA, Brazil’s third-biggest homebuilder by revenue, declined 1.2 percent to 10.15 reais.

Tim, Hypermarcas

Hypermarcas SA, Brazil’s fourth-largest consumer-goods company by market value, gained 2.2 percent to 18.40 reais. The company posted fourth-quarter profit of 87.9 million reais ($53 million), a 5.8 percent increase from a year earlier.

Voting shares of Tim Participacoes SA, the Brazilian unit of Italy’s largest phone company, fell 2.2 percent to 7.70 reais after tumbling as much as 5.3 percent earlier. Milan prosecutors are targeting Chief Executive Officer Luca Luciani in a probe of inflated client numbers, two people familiar with the investigation said.

Prosecutors are investigating whether Telecom Italia’s wireless phone unit issued more than 1.5 million false phone cards to inflate its client numbers, the people said.

A press official at an outside agency representing Tim, who can’t be identified because of internal policy, declined to comment.

Power Distributors
CPFL Energia SA gained 1.5 percent to 44.05 reais. Brazil’s largest private-sector power distributor is in talks with Neoenergia SA to evaluate “alternatives that could generate synergies,” according to a regulatory filing. The companies haven’t reached any agreement so far, CPFL said.

The Bovespa is down 3.1 percent this year after homebuilders and banks retreated on concern rising inflation will spur additional measures to restrict credit growth, outweighing gains in oil and raw-material producers.

The index trades for 10.5 times analysts’ earnings estimates, according to weekly data compiled by Bloomberg. That compares to a ratio of 13.8 for the Shanghai Composite Index, 7.3 for Russia’s Micex, and 17.3 for India’s Sensex.