Brazilian shares fall, track global equity decline

Brazilian stocks finished lower Wednesday, giving back earlier gains to track overall declines in global equity markets, reflecting investor anxiety over the prospects for resolving Europe’s debt crisis.

“Right now global markets are extremely correlated to events in Europe,” said Matt Lasov, director of global research at Frontier Strategy Group.

On the eve of a meeting of Greece’s international lenders, the benchmark Bovespa BR:BVSP -1.21% lost 1.2%, or 650 points, to end at 53,270.36.

Earlier, the index touched a high of 54,796.10.

“Upward blips” in stock market prices “reflect short-term views that a political solution to the European crisis is becoming more likely,” said Lasov, in emailed comments.

But in the U.S., equities weakened, sending the S&P 500 Index SPX -2.07%  down 2.1%. Read about U.S. stock action.

In Sao Paulo Wednesday, most of the banking sector failed to hold onto earlier gains, and the mining and steel sectors reversed course to end lower.

Shares of Banco do Brasil BR:BBAS3 -0.36%  closed down 0.4% while Banco Bradesco BR:BBDC4 +0.18%  tacked on 0.2%. But miner Vale SA VALE -1.67%   BR:VALE5 -0.59%  ended down 0.6% and steel maker Gerdau BR:GGBR4 -2.60%  shed 2.6%.

The European Commission said a review team from the so-called troika of Greece’s international lenders will meet on Thursday. Read more about the troika meeting.

Meanwhile, Finland’s parliament passed legislation authorizing changes designed to strengthen the euro-zone bailout fund. Read about the Finnish bailout fund vote.
Secondary concerns

For Latin America, however, aside from European debt problems, “there are some secondary drivers of short-term differences in local market performance,” Lasov said.
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Cautious optimism over Europe

Wall Street weighs the latest bailout news coming out of Europe as well as weaker U.S. durable-goods figures for August. (Reuters photo.)

Expectations that Brazil may “make unprecedented rate cuts,” provided some support for the market, he said.

Economists at Capital Economics expect to see a reduction of half a percentage point, to 11.5%, in Brazil’s benchmark interest, or Selic, next month, followed by a cut of the same size to 11% in November and further reductions to 10% by mid-1012.

Also Wednesday, other Latin American markets ended lower following gains in the previous session.

“Markets like Brazil and Mexico are by far the most liquid, therefore suffering more from external inflows and outflows of money,” said Ignacio Goni, president of Eagle View Investing. “Markets like Chile or Argentina, tend to be much more concentrated in local investors and in the case of Chile in the large local Pension Funds (AFPs).”

“Given the local priorities and investment mandates, neither the fallouts nor the rebounds are that impressive” for the Latin American markets, he said, noting that the most liquid names in the region, such as Vale, Petrobras BR:PETR4 -1.02%  and Itau-Unibanco BR:ITUB4 -0.31%  , “will suffer much more than less liquid names from all the financial turmoil stemming from Europe, and to a lesser extend the U.S.”

Mexico’s IPC index MX:IPC -1.02%  shed 1% to close at 33,438 and Argentina’s Merval AR:MERV -1.62%  ended at 2,515, down 1.6%. Chile’s IPSA equity index CL:IPSA +0.71%  lost 0.6% to 3,901.

“Weakness in Chile reflects the view that there may be a slowdown in Chinese demand for metals as [Beijing] seeks to slow credit growth,” said Lasov.

As for Mexico, figures on gross domestic product for July exceeded expectations, “confirming the view that Mexico’s economy will continue to outperform despite problems with organized crime and exposure to a sluggish U.S. economy,” he said.

Later Wednesday, Federal Reserve Chairman Ben Bernanke is scheduled to give a speech in Cleveland about the lessons from emerging market economies on the sources of sustained growth.