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Brazilian stocks slipped Wednesday amid uncertainties ahead of a central bank policy meeting later in the day that may result in an interest rate cut.
It was a seesaw session, in which stocks opened lower, then recovered, before dithering through midday and succumbing to a late slide. The benchmark Ibovespa index fell to 54,503 points within the first hour's trade, 0.1% points below Tuesday's close.
Trading reflected uncertainties over how the Brazilian Central Bank may react in its policy meeting to Brazil's continuing inflationary pressures against a troubled global economic backdrop. While most economists expect Brazil's Selic base interest rate--currently at 12%--to be cut to 11.5%, others foresee bigger rate cuts in response to recent indicators of a marked slowing of economic activity in Brazil.
While lower interest rates should in theory be favorable for stocks, as they translate into lower costs for companies, uncertainties continue on the effectiveness of the government's handling of inflationary pressures, depressing risk appetite.
U.S. stocks dropped as a gloomy assessment of the U.S. economy from the Federal Reserve added to a sharp fall in technology stocks after Apple Inc.'s (AAPL) earnings disappointment.
Investors in Brazil also failed to be encouraged by apparently brighter news on the European debt crisis. Reports that France and Germany are likely to step up their support for the European Financial Stability Fund--which according to some sources could reach as much as 2 trillion euros--had helped buoy European markets and the euro earlier in the day.
Bluechips showed mixed performance.
Oil giant Petroleo Brasileiro (PBR, PETR4.BR), or Petrobras, slipped 1.1% to 19.23 Brazilian reais ($11).
Miner Vale (VALE, VALE5.BR) fell 2.9% to BRL37.69. The company followed up comments on Tuesday by chief executive Murilo Ferreira with a statement that the quarterly pricing system for iron ore is the "most appropriate methodology" for sales in current iron and steel market conditions, though it said it's always open to case-by-case talks.
Vale's comments follow recent speculation that it could be switching away from the quarterly pricing system due to pressure from Chinese steelmaking clients, who prefer to purchase ore at the current cheaper spot market prices than on quarterly contract prices.
Steelmaker Gerdau (GGBR4.BR) shed 1.9% to BRL13.63 after Barclays Capital said current domestic steel market prices in Brazil may be hard to sustain given falling steel prices on international markets.
Iron ore miner MMX Mineracao e Metalicos (MMXM3.BR) fell 3.5% to BRL6.85 after former chief executive officer Roger Downey surprised the market late Tuesday by announcing his departure from the growing concern for personal reasons.
Airline TAM (TAMM4.BR) was one of Bovespa's brighter performers, gaining 1.4% to BRL30.18, after an announcement that its aircraft had an occupancy rate of 81.9% in the January-September period, 2.6% higher than in the same 2010 period and considered positive by analysts.
-By Diana Kinch, Dow Jones Newswires; 55 21 2586 6086; firstname.lastname@example.org
--Matthew Cowley contributed to this article.