Brazil stocks notch win as Petrobras surges

LOS ANGELES (MarketWatch) � Brazilian stocks rose Friday, the first time in five sessions, with Petroleo Brasileiro SA surging as the company increased the price of diesel, and after weak growth in China � Brazil�s biggest trading partner � met expectations.

Brazil�s Ibovespa BR:BVSP �rose 1.7% to 54,330.51. The index notched a weekly loss of 1.9%.

Click to Play U.S. Week Ahead: Citi, Google

A flood of large-cap companies release results next week, including Citigroup, Goldman Sachs, Bank of America, Google, Microsoft and IBM.

Steel, housing, finance and retail stocks advanced Friday, and shares of market heavyweight Petrobras PBR �jumped 5.2% after the state-run oil producer said late Thursday it�s raising the price of diesel at refineries by 6%, a move broker Raymond James said was �unexpected.�

The price increase was also made in a decelerating economic environment and as international oil prices have declined, Raymond James analyst Emiliano Wachs told clients. The new hike, effective Monday, followed recent price increases by the company for diesel and gasoline.

�In addition, it is the first time in years that a price increase will impact prices at the pump, showing a political compromise with accomplishing the company�s long-term goals,� Wachs said.

Deutsche Bank analysts Marcus Sequeira and Luiz Fonseca said the new price increase will have an �obvious positive impact� on Petrobras�s financials, �but the medium- and long-term challenges remain: weak production growth outlook, potential low return investments and government interference.�

Brazilian equities appeared to find relief in China�s report overnight that showed second-quarter growth had slowed to 7.6%, a reading in line with market expectations. Chinese data are closely watched by Brazilian investors as China is Brazil�s largest trading partner.

Reuters A factory in Sichuan province, China.

Still, the reading showed China�s economy expanded at its weakest pace in more than three years. The world�s second-largest economy expanded by 8.1% in the first quarter. Read about China's Q2 GDP growth report.

Morgan Stanley said Friday that the recovery it had expected in China �has so far failed to materialize,� in part leading to its decision to cut its 2012 forecast for Brazil�s real gross domestic product to 1.6% from 2.7% previously.

�But we would caution against blaming the Chinese cycle,� said Arthur Carvalho, Morgan Stanley�s chief Brazil economist, in a note. The global backdrop has been challenging for Brazil�s growth prospects, �but we suspect the structural impediments are even more important than the cyclical challenges,� he said. �After all, Brazil appears to be performing substantially worse than its regional peers that are also exposed to the commodities sector.�

In other Latin American markets, Mexico�s IPC MX:IPC notched a record high by rising 0.6% to 40,498.47. Chile�s IPSA CL:IPSA �gained 0.4% to 4,372.67 and Argentina�s Merval AR:MERV �rose 1.3% to 2,381.38.