September 10, 2008

2Brazil Stocks Real Tumble on Commodity Drop Mantega Outlook .txt

"Brazil Stocks, Real Tumble on Commodity Drop, Mantega Outlook "

By Andre Soliani and Heloiza Canassa

Sept. 9 (Bloomberg) -- Brazil's benchmark stock index tumbled to the lowest level in a year as prices for the nation's top commodity exports slumped and the finance minister predicted the currency will extend its steepest monthly decline since 2002.

"The Bovespa index lost 4.5 percent as a drop in sugar, oil and metals pushed down Cosan SA Industria e Comercio, Petroleo Brasileiro SA and Usinas Siderurgicas de Minas Gerais SA. Brazil's currency, the real, sank 2.3 percent, to its lowest level since January."

"Finance Minister Guido Mantega said today the currency will keep weakening as falling commodities narrow the nation's trade surplus and reduce investment. The real, which climbed 17 percent last year, has weakened 8.2 percent this month alone, the worst performance among the 16 most-traded currencies tracked by Bloomberg."

"``We've reached the limit of the real's appreciation,'' Mantega said today during an event in Brasilia. ``And in a way it's good because it won't hinder our exports.''"

"Brazil's current account deficit widened to $19.5 billion in the 12 months through June. It was the biggest gap in six years as companies stepped up profit remittances and increased imports, the central bank said last month. Turbulence in global financial markets is limiting investment flows into Brazil, Mantega said late yesterday in Brasilia."

Change in Attitude

"The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has fallen 22 percent from a record high on July 2. Commodities account for about two-thirds of Brazilian exports, according to the Brazilian Foreign Trade Association in Rio de Janeiro."

"The Bovespa index slid 2,282.67, or 4.5 percent, to 48,435.30, the first time the index dropped below 50,000 since August 2007. Five stocks fell for every one that gained. Cosan, the world's biggest sugarcane processor, dropped to the lowest level since shares began trading in 2005, falling 14.7 percent, to 18.39 reais. Petrobras, the state-controlled oil producer, sank 6.3 percent to 28.35 reais, while Usiminas lost 8.7 percent to 43.20 reais."

"The real traded at 1.7770 per dollar, a 2.3 percent drop from yesterday."

"``There's a clear change in foreign investors' attitude toward Brazil, and that has nothing to do with the country's economic fundamentals,'' said Dalton Gardiman, chief economist at Banco Bradesco BBI, the investment arm of Brazil's largest non- government bank. ``Mantega is only looking at what has already happened to the real.''"

Higher Rates

"``Brazil is now paying the price for having been everyone's favorite overweight,'' Tony Volpon, chief economist at Sao Paulo- based brokerage CM Capital Markets, said in an e-mail to clients. Investors didn't consider ``the country's economic prospect in a much less friendly world environment.''"

Brazil's policy makers increased the benchmark interest rate in the past three meetings to 13 percent from a record low of 11.25 percent in April in a bid to fight inflation at the highest level since 2005.

"The real's decline won't stoke inflation because energy and commodity prices are falling, Mantega told reporters in Brasilia today. Exports will benefit, he said."

"Inflation expectations for 2008 have declined in the past six weeks, according to a weekly central Bank survey of 100 economists."

"``The Brazilian central bank is one of the few in the world that has set an inflation target and will meet it,'' Gardiman said in a telephone interview from Sao Paulo. ``There is no element to prove the real decline is permanent and it won't rise again.''"

To contact the reporters on this story: Heloiza Canassa in Sao Paulo at hcanassa@bloomberg.netAndre Soliani in Brasilia at

"Last Updated: September 9, 2008 17:11 EDT"

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