January 22, 2010 / 4:11 PM / 10 years ago

Risk aversion puts Brazil markets under pressure

SAO PAULO, Jan 22 (Reuters) - Brazilian stocks fell on Friday, as fears the Chinese will curb lending hurt heavyweight commodity stocks and a U.S. proposal to restrict banks put investors off riskier emerging market assets.

Sao Paulo's Bovespa index .BVSP extended the previous day's losses, giving up 0.73 percent to 65,786.90 in choppy trading. On Thursday, Brazilian shares had their worst day in more than two months, plunging 2.83 percent.

Concerns that authorities might tighten credit in China, the world’s top consumer of copper, hurt commodity stocks. Brazil is one of the world’s biggest exporters of raw materials.

Stock market losses also mirrored those of shares around the world on the back of a proposal by U.S. President Barack Obama for sweeping restrictions on banks, including limiting the scope for high-risk trades.

Brazil’s currency, the real BRBY also weakened around 1.4 percent to 1.826 per dollar.

“There is an aversion to risk, and I think the real is suffering a bit with this,” said Ures Folchini, deputy head of the Treasury desk at WestLB in Sao Paulo.

The currency has also struggled in recent days on downbeat current account balance of payment numbers and talk the government may use the sovereign wealth fund to buy dollars, analysts said.

At the stock market, mining giant Vale VALE5.SA tumbled 2.17 percent to 43.79 reais as copper prices edged lower. China is a major market for Vale.

Chinese banking authorities have instructed some major banks to curb their lending over the rest of this month, official media and banking sources said on Wednesday. See [ID:nSGE60J0A8]. Investors are concerned that efforts to prevent the Chinese economy from overheating could cool demand for commodities.

Steelmakers also struggled on the back of lower metal prices.

Investors are concerned that efforts to prevent the Chinese economy from overheating could cool demand for commodities.

Gerdau (GGBR4.SA) shed 1.78 percent to 25.93 reais, CSN (CSNA3.SA) gave up 1.98 percent to 53.60 reais and Usiminas (USIM5.SA) was flat at 46.31 reais.

Some financial stocks also struggled.

Bradesco (BBDC4.SA) and Banco do Brasil (BBAS3.SA) fell 0.4 percent and 0.7 percent respectively.

In other news, Braskem (BRKM5.SA), Brazil’s largest petrochemical company and oil giant Petrobras (PETR4.SA) have struck a deal to take over smaller rival Quattor. See [ID:nN22178410].

State-run oil giant Petrobras was down slightly at 34.25 reais and Braskem added 0.5 percent to 14.00 reais.

Limiting the downside, Brazil’s state-run utility holding Eletrobras (ELET6.SA) jumped more than 10 percent to 34.80 reais after the company agreed to pay $5.65 billion in overdue dividends dating back to the 1970s. See [ID:nN22124445].

Interest rate futures were broadly higher <0#DIJ:>. The central bank is widely expected to keep rates steady at a record low of 8.75 percent at a monetary policy meeting next week but analysts are already betting it could raise rates as early as next March. See [ID:nSPG002699].

Investors will pay close attention to the statement accompanying policy-makers’ decision to see how worried the bank is becoming on inflation pressures. (Reporting by Ana Nicolaci da Costa, Editing by W Simon )

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