Brazil stocks, currency boosted by booming GDP data

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June 10, 2010 2:48 AM EST

Brazilian stocks and the country's currency rebounded on Tuesday after data showed Latin America's largest economy grew at its fastest pace in over a decade.

Brazil's gross domestic product surged 9 percent in the first quarter compared with a year earlier -- the strongest growth since at least 1996, the government statistics agency IBGE said. For details, see

The data reassured skittish investors who have fled emerging markets in recent months due to fears over Europe's debt crisis.

The benchmark Bovespa stock index .BVSP, which has plunged about 14 percent over the past two months, closed up 1.1 percent at 61,855.52 points after having fallen in the previous two sessions.

"The GDP data is definitely helping. It shows how well the economy is doing and, consequently, is a good indicator of companies' profits," said Luciano Rostagno, chief strategist at CM Capital Markets in Sao Paulo.

The index remained in positive territory throughout the session, even as U.S. and European stocks struggled. A late recovery on Wall Street buoyed Brazilian equities further.

Brazil's currency, the real (BRBY), strengthened 0.97 percent to 1.860 per dollar as the greenback fell against a basket of major currencies .DXY.

However, developments in Europe remain a concern for Brazil, currency strategists at Brown Brothers Harriman in New York wrote in a note to clients.

"While Brazil fundamentals remain solid, we think that appreciation -- not only for the Brazilian real but for emerging market (currencies) as a whole -- will be very limited in the coming months," they wrote. "With an election this fall in Brazil, one should not underestimate the potential for increased volatility in Brazil markets."

The GDP data also helped push yields on Brazilian interest rate futures contracts <0#DIJ:> higher on the view that the central bank will have to hike interest rates further to prevent the economy from overheating.

Most analysts polled by Reuters expect policymakers to raise the so-called Selic rate by three-quarters of a percentage point to 10.25 percent at their Wednesday meeting.

The yield on the contract due January 2011 DIJF1, among the day's most popular, edged up to 11.01 percent from 10.96 percent. The yield on the contract due January 2012 DIJF2 ticked up to 11.9 percent from 11.83 percent.

On the Bovespa index, heavyweight Vale led gains as commodities climbed higher in late trading. Shares in the mining company jumped 1.1 percent to 40.26 reais.

State-controlled energy company Petrobras, the most heavily-weighted stock in the index, added 0.5 percent to 29.66 reais as crude oil settled up 0.77 percent.

News of solid consumer demand also helped some retailers, with Lojas Renner jumping 1.5 percent to 44.37 reais.

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