Brazil Stocks Reach Three-Year High on Interest-Rate Speculation

(Bloomberg) -- Brazil’s Ibovespa advanced to the highest level in more than three years on speculation that the central bank may cut interest rates next week more than previously expected after a surprise reduction in fuel prices.

State-controlled oil producer Petroleo Brasileiro SA contributed the most to the benchmark equity index’s advance after announcing a new policy that will ensure fuels aren’t priced below international levels. Retailer Lojas Americanas SA gained the most among companies that depend on domestic demand as swap traders slashed their estimates for borrowing costs. Miner Vale SA and steelmaker Gerdau SA followed metals prices higher.

Brazilian stocks have climbed 78 percent this year in dollar terms, the most among major global benchmarks, on bets that President Michel Temer, who permanently replaced impeached Dilma Rousseff in August, would be able to win back investor confidence and restore growth. Lower interest rates are seen as a boost to the new government’s efforts.

"All the conditions to ease the monetary policy now are given," Jason Vieira, chief economist at Infinity Asset Management, said from Sao Paulo. "Brazil is certainly going in the right direction."

The Ibovespa rose 1.4 percent to 61,996.73 at 10:52 a.m. in Sao Paulo as all but three of its 58 stocks gained. Petrobras, as the state-run oil producer is known, added 3 percent. Lojas Americanas advanced 1.1 percent to a record high. Vale and Gerdau climbed at least 2.7 percent.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, dropped 0.06 percentage point to 11.91 percent, the lowest since November 2014.

To contact the reporter on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Jessica Brice, Sebastian Boyd