Brazil stocks down as Itau pulls down banks

SAO PAULO, Aug 11 (Reuters) - Brazilian stocks posted their biggest intraday drop in more than a month on Tuesday, dragged down by banking giant Itau Unibanco after it reported recurring net income plunged in the second quarter.

The benchmark Bovespa index .BVSP slipped 2 percent to 55,728.83, a day after closing at a high for 2009. The index has been gaining consistently in recent weeks, adding about 14 percent since July 14.

Recurring net income at Itau Unibanco (ITUB4.SA), Latin America's biggest bank by assets, fell 14 percent on increased provisions for bad debt. Still, the drop was less than analysts had expected. Shares tumbled 4.21 percent to 34.57 reais.

Comments by Itau Unibanco Chief Executive Roberto Setubal that lending rates charged by public banks are too low and unsustainable reinforced concern that profitability at the nation's banks will erode in coming months.

"It is a bit of warning sign," said Marcio Macedo, who manages about 20 million reais in stock at Humaita Investimentos. "This sparked some skepticism among investors about the outlook for profits."

Brazil's currency, the real (BRBY), weakened 0.4 percent to 1.856 reais per dollar in the morning, its weakest point in nearly two weeks.

Other banking stocks also fell. Banco Bradesco (BBDC4.SA) lost 2.23 percent to 30.21 reais, and Banco do Brasil (BBAS3.SA) dipped 0.45 percent to 24.49 reais.

Shares were also dragged down by profit-taking.

"It's a bit of profit-taking," said Hersz Ferman, an economist with Um Investimentos. "It's a bit of a breather. Things could start to gain again soon."

State-controlled energy giant Petrobras (PETR4.SA) slipped 1.06 percent to 31.76 reais on the heels of a 1.84 percent tumble in crude oil CLc1, pressured by a lower opening in U.S. equities.

Mining company Vale (VALE5.SA), the world's largest iron ore producer, lost 2.12 percent to 32.38 reais.

Petrobras and Vale have the heaviest weighting in the Bovespa index.

The 19-commodity Reuters-Jefferies index .CRB shed 0.31 percent.

Limiting losses was plane maker Embraer (EMBR3.SA), which added 1.95 percent to 11 reais. Brazilian newspaper O Estado de Sao Paulo reported on Tuesday that Boeing (BA.N) and Embraer have talked recently about partnerships, though the paper did not detail what projects are on the table.

Yields on Brazilian interest rate futures contracts <0#DIJ:> continued to slide.

The yield on the contract due January 2011 DIJF1 slipped to 9.81 percent from 9.85 percent. The yield on the contract due January 2010 DIJF0 dipped to 8.65 percent from 8.66 percent. Both were among the most highly traded contracts of the morning.