Brazil’s Stocks Rise as Vale Gain Offsets Interest-Rate Outlook

(Bloomberg) -- The Ibovespa held at its highest level in more than four years as miner Vale SA rallied on record iron-ore output, outweighing a drop among consumer stocks after Brazil’s central bank signaled that it will take a cautious approach to monetary policy.

Vale contributed the most to the benchmark equity index’s gains Thursday afternoon, while steelmaker Metalurgica Gerdau SA climbed to the highest in one month. For-profit college manager Kroton Educacional SA was among the worst performers on the gauge after the monetary authority decided Wednesday to cut the benchmark interest rate by 0.25 percentage point to 14 percent. That was in line with the forecasts of 36 out of 59 analysts surveyed by Bloomberg. Twenty-one economists predicted a 0.50 percentage-point reduction.

Rio de Janeiro-based Vale reported that output increased to 92.1 million metric tons for the third quarter, exceeding the 90.3 million-ton average estimate among five analysts surveyed by Bloomberg. Investment bank Banco Itau BBA SA recommended buying Vale, which accounts for about 6 percent of the Ibovespa’s weighting, amid a brighter profit outlook as the company sells assets and cuts expenses.

"Vale could become the most competitive iron-ore producer in China," analysts led by Marcos Assumpcao said in a note to clients today. "We expect Vale to report remarkable third-quarter results."

The Ibovespa added 0.5 percent to 63,837.85 at the close of trading in Sao Paulo as 33 of its 58 stocks advanced. Vale gained 4.4 percent, while Metalurgica Gerdau added 2.5 percent.

The benchmark equity index fell as much as 1.2 percent earlier as the central bank surprised analysts who had expected a more aggressive reduction in borrowing costs amid Brazil’s worst recession in a century. Kroton lost 2.4 percent, while homebuilder MRV Engenharia e Participacoes SA fell 0.7 percent.

"It seems that the interest rate won’t decline as fast as many investors hoped," Vitor Suzaki, an analyst at Lerosa Investimentos, said from Sao Paulo. "This cautious strategy raises uncertainties over the central bank’s next steps."

Brazilian stocks have gained 85 percent in dollar terms this year, the best performance in the world, on optimism that the country is recovering from an economic and political crisis. The index is trading at 14 times estimated earnings, close to the most expensive level since May 2015.

--With assistance from Ney Hayashi To contact the reporters on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net, Marisa Castellani in Sao Paulo at mcastellani7@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Sebastian Boyd, Lester Pimentel