Rates, U.S. serve double-whammy to Brazil stocks

Thu Jul 24, 2008 5:27pm EDT
By Ana Nicolaci da Costa
SAO PAULO, July 24 (Reuters) - Brazil's stock market slumped more than 3 percent on Thursday with a steep rate rise in the previous session and tumbling U.S. stocks serving a double blow to a market suffering sharp losses this month.
Sao Paulo's main stock index .BVSP was down 3.3 percent at 57,434.37 points, taking July's losses to more than 11 percent so far.
On Wednesday, Brazil's central bank raised rates by a higher-than-expected 75 basis points to 12.75 percent in a move aimed at curbing resurgent inflation whose build-up risks undermining economic growth.
But this helped Brazil's currency, the real BRBY, up 0.4 percent against the dollar to trade at 1.579.
The prospect of higher local interest rates and of a potential recession in the world's largest economy took a toll on the broader market.
Top weighted oil giant Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz) fell 4.4 percent to 34.50 reais even as crude prices rose. Miner Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz) lost more than 5 percent to 38.00 reais dragged by lower metal prices.
Meanwhile, U.S. stocks tumbled after a report showing yet another drop in U.S. home sales prompted investors to take profits in financial shares.
"With a very poor performance in international markets, the impact from higher interest rates took a back seat," said Rodrigo Bresser Pereira, director of Bresser Wealth Management.
Brazilian banks also fell. Banco Bradesco (BBDC4.SA: Quote, Profile, Research, Stock Buzz) fell 3.4 percent to 32.85 reais, Banco Itau (ITAU4.SA: Quote, Profile, Research, Stock Buzz) slid more than 4 percent to 32.90 and Unibanco (UBBR11.SA: Quote, Profile, Research, Stock Buzz) lost 4.8 percent to 20.20 reais.
Not even lower-than-expected inflation numbers managed to cheer economists betting on more monetary tightening down the line.
Brazil's so-called IPCA-15, which tracks consumer prices from around the 15th of one month to the 15th of the next, rose 0.63 percent in the month to mid-July, less than an expected 0.67 percent rise. It slowed from a 0.9 percent increase in the month to mid-June.
Interest rate futures <0#dij:> on the BM&F commodities and futures exchange in Sao Paulo were mixed, with a majority of economists betting on more tightening after the central's bank steeper-than-expected rate rise on Wednesday.
A Reuters poll published on Thursday showed analysts raised their forecasts for Brazilian rate hikes in 2008 with a majority betting on another 75 basis point increase at the monetary policy comittee's September meeting.
(Additional Reporting Aluisio Alves; Editing by Diane Craft)