Brazil stocks slide, real firms eyeing global mkts

Thu Jan 31, 2008 3:59pm EST

(Updates to close)
SAO PAULO, Jan 31 (Reuters) - Brazilian stocks fell on Thursday in tandem with early losses on European markets and despite rallying U.S. bourses while the currency gained on expectations of investment flows and was helped by futures contract expiry.
The Bovespa index .BVSP of the Sao Paulo Stock Exchange was down 1.33 percent at 59,490.4 points after gaining 1.28 percent in a late surge on Wednesday. The index was led lower by state-run oil company Petrobras, the market bellwether.
Shares followed early declines on Wall Street, but only erased some of its losses when the U.S. markets began picking up in afternoon trading.
Standard & Poor's said late on Wednesday it may cut or downgrade the ratings of hundreds of billions of dollars of U.S. mortgage-backed securities and collateralized debt obligations, weighing on investor sentiment in Brazil.
The warning took some of the shine off another hefty interest-rate cut by the U.S. Federal Reserve, which lowered its key lending rate on Wednesday by a half-percentage point to 3 percent in a fresh effort to jolt a sputtering economy.
Interest rate futures <0#dij:> were mixed on the BM&F commodities and futures exchange in Sao Paulo.
The jitters were ignored by Brazil's foreign exchange market, where the real BRBY rallied 1.18 percent to 1.76 per dollar.
The real gained on end-of-the-month futures settlements and expectations of increased investment flows to Brazil in the wake of the Fed's decision after net outflows of $1.65 billion through Jan. 24.
Lower interest rates in the United States tend to prompt investors to shift money to emerging markets like Brazil, where the benchmark lending rate is a lofty 11.25 percent.
But players were divided on whether the real could strengthen much next month, and many urged caution saying the crisis abroad will define the market's behavior in Brazil.
"The expectation is that the forex rate will remain volatile. It shouldn't shift away much from from this level of 1.75 to 1.8 per dollar," said Cristiano Souza, an economist with ABN Amro.
At the stock market, shares fell across the board. Petrobras (PETR4.SA: Quote, Profile, Research), the heaviest weighted stock in the Bovespa index, was down 2.7 percent at 80.4 reais. Vale (VALE5.SA: Quote, Profile, Research), the mining company formerly known as CVRD, eased 0.97 percent to 44.77 reais.
Stocks in the telecommunications sector rose on expectations of a big merger soon of two Brazilian companies and after a newspaper report saying that the government may consider ways to allow a tie-up between foreign-owned mobile phone companies Vivo and TIM.
Vivo (VIVO4.SA: Quote, Profile, Research) is a joint venture between Spain's Telefonica (TEF.MC: Quote, Profile, Research) and Portugal Telecom (PTC.LS: Quote, Profile, Research), while TIM is run by Telecom Italia (TLIT.MI: Quote, Profile, Research), in which Telefonica has a stake. Vivo stocks jumped 6.28 percent to 10.15 reais on Thursday. TIM Participacoes rose 4.04 percent to 6.7 reais.
The government is also discussing how to remove regulatory hurdles to allow for an acquisition of Brasil Telecom by Oi Participacoes, the phone company formerly known as Telemar. Such a deal would create a huge Brazilian telecom holding to compete with foreign rivals such as Telefonica.
Telemar rose 0.89 percent to 45.4 reais, and Brasil Telecom added 2.08 percent to recent gains on the acuisition speculatuion. (Reporting by Todd Benson, Silvio Cascione and Andrei Khalip; editing by Gary Crosse)