July 21, 2017 / 5:37 PM / a year ago

EMERGING MARKETS-Brazil stocks fall, dragged down by Petrobras

    By Bruno Federowski
    SAO PAULO, July 21 (Reuters) - Brazilian stocks dropped on
Friday as falling prices of crude oil and an increase in fuel
taxes weighed on shares of state-controlled oil company Petróleo
Brasileiro SA.
    Preferred shares in Petrobras, as the company is
known, slipped 2.3 percent, subtracting the most points from
Brazil's benchmark Bovespa stock index.
    The shares moved after the government raised the federal
PIS/Cofins social contribution tax on gasoline, diesel in
ethanol to cover a budget shortfall, increasing concerns of
reduced demand because of higher prices.
    But the outlook for higher prices was not enough to dissuade
traders that the central bank will cut interest rates by an
aggressive 100 basis points in its meeting this month.
    Rate-future yields, which were nearly flat on Thursday,
suggested an 86 percent chance that of a 100 basis-point
reduction in the benchmark Selic rate to 9.25 percent.

    "The impact is relevant on consumer prices though I don't
think this is essentially 'inflationary,'" Santander Brasil
managing director Sandro Sobral wrote in a note to clients. "The
net result is positive when looking at the fiscal impact."
    Economists at Banco BTG Pactual on Thursday revised their
forecast the Selic rate and now expect it to fall as low as 8
percent, compared to 8.5 percent previously, while "also
recognizing that there is at this stage a greater probability of
an even lower figure."
    Shares in Localiza Rent a Car SA, Brazil's
largest rental car company, touched an all-time high and were
the biggest gainers on the benchmark index after falling
interest rates helped it to post record quarterly profit.

    The Brazilian real seesawed, but still headed for its
fourth straight week of gains.
    It has been the best-performing currency in Latin America
this month after a proposal to reform the country's labor
regulations cleared Congress, suggesting resilient lawmaker
support for President Michel Temer's reform agenda despite a
political crisis.
    The Mexican peso slipped 0.6 percent as the drop in
crude prices drove investors to book profits on the currency,
which reached this year's peak earlier this week.
    It was set to gain for a third straight week, boosted by
trader optimism over a trade deal between Mexico and the United
States, as well as bets on a slower-than-expected pace of U.S.
interest rate hikes.
    Latin American stock indexes and currencies at 1725 GMT:
 Stock indexes                     Latest        Daily  YTD pct
                                                   pct   change
 MSCI Emerging Markets               1,059.96     0.05    22.86
 MSCI LatAm                          2,737.34     0.06    16.88
 Brazil Bovespa                     64,732.87    -0.32     7.48
 Mexico S&P/BVM IPC                 51,437.14     0.57    12.69
 Chile IPSA                          5,034.79    -0.01    21.28
 Chile IGPA                         25,144.47    -0.02    21.27
 Argentina MerVal                   21,633.77     0.79    27.88
 Colombia IGBC                      10,871.02    -0.09     7.34
 Venezuela IBC                     132,529.27     0.92   318.00
 Currencies                            Latest    Daily  YTD pct
                                                   pct   change
 Brazil real                           3.1283    -0.07     3.86
 Mexico peso                          17.5820    -0.55    17.98
 Chile peso                             651.1     0.08     3.01
 Colombia peso                       3,011.42    -0.51    -0.33
 Peru sol                               3.248    -0.22     5.11
 Argentina peso (interbank)           17.4050    -1.06    -8.79
 Argentina peso (parallel)              17.87    -0.17    -5.88
 (Reporting by Bruno Federowski; editing by Grant McCool)
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