EMERGING MARKETS-Brazil's Bovespa plunges as oil producer Petrobras tanks

Mon Dec 2, 2013 4:32pm EST

* Brazil Bovespa falls 2.36 percent

* Mexico IPC down 0.85 percent

MEXICO CITY Dec 2 (Reuters) - Brazil's benchmark Bovespa stock index fell on Monday as shares of state-run oil company Petrobras dropped their most in five years after the company announced a smaller-than-expected increase in fuel prices late on Friday.

Chile's bourse ended a three-session rally, while Mexico's IPC index fell nearly 1 percent.

The Bovespa dropped 2.36 percent to 51,244.87, its biggest one-day decline since late September.

Petroleo Brasileiro SA, as Petrobras is formally known, said on Friday that it would raise the wholesale price of gasoline 4 percent and the price of diesel 8 percent to cut losses and bring domestic fuel costs closer to international levels.

The company said it had approved a new pricing policy in order to seek "convergence" with world fuel prices, but declined to describe how the policy would work.

"This particular increase in diesel and gasoline prices is far from enough to reduce the pressure on the company's balance sheet," wrote Itau BBA analysts led by Paula Kovarsky. "We believe that the lack of transparency about the formula will cause frustration in the market."

Petrobras preferred shares dropped 10.37 percent, while common shares were down 9.21 percent.

Preferred shares of iron ore mining firm Vale SA fell 0.46 percent after the company announced a 2014 investment budget of $14.8 billion, down from $16.3 billion in 2013, with 80 percent going to develop new iron ore projects and for logistics.

Mexico's IPC index snapped a four-day rally, dropping 0.85 percent. The index is hovering near its highest level since August.

A 2.49 percent drop in bottling company Femsa weighed on the index, as did a 0.99 percent fall in shares of America Movil, the telecoms behemoth controlled by Mexican billionaire Carlos Slim.

Chile's IPSA index fell 0.75 percent to 3,760.50 as shares of retailer Falabella fell 2.78 percent.

Shares of health group Cruz Blanca Salud soared over 29 percent after health multinational Bupa-Sanitas offered to buy control of the company for roughly $313 million.

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