Brazilian Stocks Gain on Commodity Rally Rate Cut Expectations

Brazilian stocks gained for a second day, led by commodity producers and banks, as oil prices surged and investors increased their expectations for interest-rate cuts next year.

Petroleo Brasileiro SA jumped the most in almost two weeks after Israeli air strikes in the Gaza strip sent crude up as much as 12 percent. Cia. Vale do Rio Doce, the world’s biggest iron- ore producer, rose more than 2 percent as metal prices gained. Banco Bradesco SA led gains among lenders after economists bet the central bank will cut rates by 1.75 percentage point next year, a steeper cut from estimates one week ago.

The Bovespa index climbed 535.05, or 1.5 percent, to 37,399.18 at 8:30 a.m. New York time. The index is down 42 percent this year. The MidLarge Cap index gained 2.2 percent today, while the Small Cap index advanced 0.5 percent. Chile’s Ipsa added 0.4 percent.

“Investors are already expecting a cut at the next meeting, the disagreement is just how big the reduction will be, with a bigger cut being able to stimulate the economy a bit more,” said Eduardo Roche, who helps manage the equivalent of about $600 million at Banco Modal SA in Rio de Janeiro. “Commodities, with oil as a reference, have been very volatile, and we’re waiting to see if this recovery is sustainable.”

Brazil’s central bank will lower its benchmark rate to 12 percent by the end of 2009, down from a previous forecast of 12.25 percent a week earlier, according to a central bank survey of about 100 economists. The rate is currently at 13.75 percent.

Henrique Meirelles, told President Luiz Inacio Lula da Silva that the main rate would be cut in January, the Folha de S. Paulo reported. The next meeting is on Jan. 21.

Banks Gain

Bradesco, Brazil’s second-biggest non-government bank, rose 1.9 percent to 22.62 reais. Banco Itau Holding Financeira SA, which agreed to buy Uniao de Bancos Brasileiros SA to form Latin America’s biggest financial services company, rose 1.1 percent to 26.18 reais. Unibanco rose 0.9 percent.

Petrobras, as the state-controlled oil company is known, added 3.4 percent to 22.87 reais. Crude oil for February delivery rose as much as $4.49 to $42.20 a barrel in New York.

Defense Minister Ehud Barak said Israel is fighting a “war to the death” with Hamas, the group that controls Gaza. Prices also advanced as China, the world’s second-biggest energy consumer, said it will supplement its emergency oil stockpiles while prices are low, and the United Arab Emirates announced compliance with OPEC production cuts agreed on this month.

Vale gained along with prices of copper and nickel as a weaker dollar buoyed the appeal of commodities as an alternative investment to the U.S. currency. Vale, the second-biggest nickel producer, rose 2.4 percent to 24.48 reais.

Brazil’s economy will grow 2.44 percent next year, up from a 2.4 percent forecast a week earlier, according to the survey, which was taken on Dec. 26 and published today.

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Brazilian Stocks Gain on Commodity Rally Rate Cut Expectations