Brazilian stocks end lower, log weekly gain

SAN FRANCISCO (MarketWatch) � Brazilian equities finished higher Friday, with consumer durable stocks leading the gains and the market�s benchmark index ending the week higher, as traders digested news of government tax increases as well as data showing that the nation�s producer price index fell in January.

Brazil�s Ibovespa BR:BVSP �rose 1.5%, or 971.80 points, to close at 67,781.60, posting a gain of 2.8% for the week.

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Consumer durables led the gains among the subsectors in Sao Paulo, with home builder Rossi Residencial BR:RSID3 �rallying 7% and PDG Realty BR:PDGR3 �up 3.6%.

On Thursday, Brazil�s government extended an existing 6% IOF financial operations tax to three-year foreign loans. The tax was previously levied only on loans of two years or less.

Also Thursday, the Brazilian Central Bank announced limits on advance payment of imports by nonresidents, according to a note from Banco Ita� BBA. Advance payment is now limited to contracts of up to one year and can only be made to the importer himself, and rules apply on interest payment.

Central Bank director Aldo Mendes said the limits are part of an effort to avoid excess inflows, the note said.

The government also announced a new measure restricting export financing prepayments, with the maximum maturity of this financing line limited to 360 days, according to analysts at Barclays Capital, adding that all export financing beyond 360 days is subject to the 6% IOF.

The idea was �to close another loophole that had been used to capture the high interest rate differential in Brazil,� said analysts at Barclays Capital, in a research note Friday.

�According to the central bank, there was a 46% increase in FX inflows classified as export prepayments ($8 billion) in January and February of 2012, and the financing modality was responsible for $54 billion of inflows in 2011,� they said.

Currency containment

�These measures should be seen as part of the arsenal that the government is just starting to deploy to contain [Brazilian real] appreciation,� the Barclays Capital analysts said. �We are skeptical that they will reverse the trend and see a risk that as the USD/BRL continues to trend down, more measures will be announced.�

Against that backdrop, the Brazilian real weakened, with the U.S. dollar USDBRL �buying 1.7289 reals, up 0.9% from late Thursday.

/quotes/zigman/4869237/sampled USDBRL 2.0242, 0.0000, 0.0000%

In economic news Friday, the nation�s producer price index showed a decline in factory-gate prices in January of 0.46%, following a decline of 0.17% in December, according to Dow Jones Newswires.

�The continued decline in producer prices is further evidence that a two-speed economy has taken hold in Brazil as manufacturers and commodity producers languish, while the government doubles down on consumer-focused stimulus efforts,� said Ryan Brier, associate practice leader, Latin America at Frontier Strategy Group.

Brazil�s central bank meets Tuesday and Wednesday, with market consensus forecasting a 50 basis-point cut to 10% for the benchmark interest rate, according to analysts at Brown Brothers Harriman, though some analysts call for a larger 75 basis-point cut.

�Given the new monetary policy paradigm in Brazil, we certainly see front-loading cuts as a real possibility,� they said. �Still, we think that a 50 [basis point cut] is the more likely outcome as the international outlook has improved materially, and a 6.2% year-on-year inflation rate must still be considered elevated.�

Elsewhere in Latin America, Argentina�s Merval equity index AR:MERV �ended 0.3% higher at 2,757.30, with steel maker Siderar AR:ERAR , up 9.4%, and aluminum producer Aluar Aluminio Argentino AR:ALUA �gaining 3%, among the standouts. The Merval finished 0.2% lower for the week.

Mexico�s IPC MX:IPC �picked up 0.8% to end at 38,327.43, up 1% for the week. Government data Friday showed that the nation�s producer confidence index rose about 2% in February 54.5 points.

�This increase in producer confidence reflects increased optimism among manufacturers that the U.S. economy, the destination of nearly 80% of Mexican exports, is starting to turn a corner,� said Brier.

Chile�s IPSA CL:IPSA �shed 0.2% to 4,552.34, closing 0.9% higher on the week.

U.S. stocks on Friday finished modestly lower, with the S&P 500 Index SPX �down 0.3%. Read more on the U.S. stock market.