RPT-Brazil stocks rise as investors shrug off new tax

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By Luciana Lopez

SAO PAULO Oct 21 (Reuters) - Brazilian stocks bounced back on Wednesday as investors decided potential growth in Brazilian companies outweighed the disadvantage of a new foreign investment tax.

The benchmark Bovespa index .BVSP added 1.78 percent to 66,462.77, erasing more than half of its 2.9 percent loss on Tuesday, when a new 2 percent tax on financial transactions on foreign investments in Brazilian stocks and fixed-income securities took effect.

The country's currency, the real BRBY fell 2.1 percent on Tuesday, but on Wednesday strengthened 0.46 percent to 1.740 per U.S. dollar. It is up about 34 percent to the dollar so far in 2009.

The Bovespa index has shot up 74 percent in 2009 through Tuesday's close as Brazil's economy has ridden out the global economic crises with less damage than many other countries.

"The global backdrop will continue to dictate the direction of asset prices in Brazil," Vinicius Silva, an equities strategist at Morgan Stanley in New York.

A slew of data from China, set for release overnight, will probably trump the news of the tax, Silva said.

China's voracious appetite for commodities and continued growth has helped countries such as Brazil, where a number of heavyweight companies are tied to the trade in raw materials.

Those stocks include energy company Petrobras and mining giant Vale, the two most heavily weighted stocks in the index.

Petrobras (PETR4.SA) rose 1.45 percent to 37.03 reais. Vale (VALE5.SA) added 2.35 percent to 41.45 reais.

"We reiterate our Outperform rating, and recommend increasing positions in the stock in the short term, as we believe Vale should post strong 3Q09 results (to be released on Oct. 28), with effective iron ore prices rising 42 percent QoQ, and valuations are low," noted a report from Bradesco on Vale, dated Tuesday.

Steelmaker CSN (CSNA3.SA) advanced 2.5 percent to 62.83 reais as a Barclays Capital report noted those shares should rise thanks to the company's exposure to an upswing in iron ore prices. For details see [ID:nN21359548].

Fellow steelmakers also rose: Gerdau (GGBR4.SA) gained 2.26 percent to 29.85 reais and Usiminas (USIM5.SA) climbed 1.92 percent to 53.15 reais.

Yields on Brazilian interest rate futures contracts <0#DIJ:> largely slid, especially among longer-term contracts.

The yield on the contract due January 2011 DIJF1 dipped to 10.38 percent from 10.44 percent. The yield on the contract due January 2012 DIJF2 slid to 11.6 percent from 11.67 percent.

Both were among the morning's most highly-traded contracts.

Investors use the contracts to bet on trends in Brazil's benchmark interest rate, the Selic, now at 8.75 percent.

Central bank policy-makers conclude a two-day meeting on Wednesday, and analysts expect the Selic to remain unchanged through at least the end of the year.

Less certain is when policy-makers will begin tightening after having hacked 500 basis points off the Selic in 2009 to jump-start the country's flagging economy.

Though Brazil resumed growth in the second quarter, inflationary risks remain low, government officials have noted. Yet as the recovery gathers steam, analysts weigh the chance that the bank will begin hiking the rate sometime in 2010. (Reporting by Luciana Lopez. editing by W Simon)