LOS ANGELES (MarketWatch) � Stocks in Brazil dropped Monday, with resource-related stocks among those hit, after the country�s biggest trading partner lowered its yearly growth target.
Stocks across Latin America and in the U.S. fell in the wake of the Chinese government�s cut of its economic growth target to 7.5% from last year�s 8%. The move indicated the world�s second-largest economy plans to focus on development of internal consumption and services. Read about China's new 2012 growth target.
China cuts economic projections
China's National People's Congress kicks off with the country dialing back its economic projections for 2012. AFP photo/ Liu Jin
China is Brazil�s biggest trading partner, with Brazil�s key exports there including iron ore and soy.
Mining stocks traded in Sao Paulo struggled Monday, contributing to a 1.2% loss on Brazil�s Ibovespa equity index BR:BVSP �to 66,964.03.
Vale, the world�s largest iron-ore supplier and a heavily weighted issue on the Ibovespa, fell 2.9%. Iron ore MMX Mineracao BR:MMXM3 , top shareholders of which include China�s Wuhan Iron & Steel CN:600005 , declined 4.1%, and steel producer Gerdau G! GB fell 1.7%. Usiminas shares BR:USIM5 , however, bucked the downturn, trading up 2.7%.
Brazilian equities also pulled back ahead of Brazil�s release on Tuesday of fourth-quarter and yearly readings of economic activity. An interest-rate decision by the Brazilian central bank is due Wednesday, and economists widely expect the benchmark rate to be cut from 10.5%.
�I wouldn�t be surprised if until the end of the year we see another 100 [basis points] of cuts, [ a] pause, and depending on numbers such as inflation, growth, foreign-exchange and trade balance that are in place, they will probably continue down that path,� said Heiner Skaliks, portfolio manager of the Strategic Latin America Fund SLATX �, during a recent interview in Los Angeles.
The local yield curve �has begun to flirt� with a rate cut of three-quarters of a percentage point, said analysts at Ita� BBA on Monday. But they added that most economists, including those at Ita�, expect a fifth consecutive cut of a half-percentage point to 10%.
�We expect the accompanying statement to indicate more cuts ahead. In addition, [policy makers] might replace the �restrictive global environment� rhetoric with a reference to the booming global liquidity,� Ita� BBA analysts said.
Policy makers may also �incorporate the �single-digit� guidance that has already appeared in the minutes� of previous ! policy m eetings, they said.
Brazil�s currency USDBRL �pulled back on Monday, with the dollar rising to 1.734 reals, up from 1.729 reals Friday when the real lost ground in the wake of tax measures aimed at curbing the currency�s strength.
Skaliks said he�d be comfortable seeing the dollar at the 1.85 real level. �The 1.60 [level] is too expensive and not competitive for exports, and definitely 2.10, 2.20 is an undervalue.�
A lower benchmark interest rate and government intervention measures can reduce a currency�s attractiveness.
Skaliks said Brazil overall remains a key destination for investors searching for higher-yielding assets as well as for aiming to benefit from activity surrounding Brazil�s hosting of the World Cup soccer tournament in 2014 and the Summer Olympics in 2016.
Oil and gas stocks closed lower on Monday although oil futures fought back from losses spurred by demand concerns following China�s lowered growth outlook and mixed economic data from the U.S. and Europe.
Crude for April delivery �turned up 2 cents to $106.72 a barrel. Read about oil prices in Futures Movers.
Stock in Petrobras PBR , Brazil�s state-run oil producer, fell 2.8%. OGX Petroleo e Gas BR:OGXP3 �fell 1%, and Ultrapar BR:UGPA3 �shed 0.2%.
In Mexico, the IPC MX:IPC �lost 0.5% to end at 38,155.27. Argentina�s Merval AR:MERV �fell 2.4% to 2,690.58, and Chile�s IPSA CL:IPSA �declined 1% to 4,506.41.
On Wall Street, the S&P 500 Index SPX �gave up 0.4% to close at 1,364.33. Read about U.S. stocks in Market Snapshot.
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