Brazil Stocks Open Lower As Dubai, Forex News Weighs

SAO PAULO (Dow Jones)--Brazil's Ibovespa stock index opened lower Thursday as news of Dubai World's attempt to renegotiate its debt had emerging market indexes like the Bovespa paying the price.
The Ibovespa opened 1.08% lower to 67,182 points on the BM&F Bovespa stock exchange.
Although Dubai stole most of the headlines, Japan's concern over the U.S. dollar and the possibility that the Swiss National Bank will raise interest rates to counter a weak dollar also has investors selling equities. Fund managers around the world have been waiting for signs that major central banks will start raising interest rates, which often make the more stable fixed income markets more attractive than volatile equity markets.
"Investors are still trying to digest Dubai news, so right now it is a collection of variables that are pushing Brazil stocks lower," said Andre Perfeito, an economist at Gradual Investimentos in Sao Paulo.
Overall, Brazil's risk level remains intact despite the news that Dubai World, the investment fund of Dubai in the United Arab Emirates, will defer six months on billions in loans owed to a host of major European banks.
Dubai credit default swaps, or CDS, jumped over 100 basis points on Wednesday on the news, while Brazil's CDS were little changed. So far Thursday, Brazil CDS were around 119.35 basis points over U.S. Treasurys with no major indications that Brazil risk levels will skyrocket later Thursday.
"If it becomes clear that European banks are not going to get any return on their investment in Dubai, it could set off a string of bad banking news that will take stocks lower. Brazil won't be able to escape that," Perfeito said.
Brazil's economy has been humming along just fine despite one of the worst global recessions since World War II. Unemployment data for October Thursday came within market consensus of 7.5%, down from 7.7% in September. The government also reported an October primary budget surplus of 13.82 billion Brazilian reals ($8 billion), reversing a September deficit of BRL5.76 billion.
That Brazil's economy is performing well is no surprise for fund managers who like historic low interest rates, increasing salaries, and Chinese demand for Brazilian raw materials. But concerns over interest rates in Japan and Switzerland led to moderate share price declines in Brazil banking and major raw material exporters.
Oil major Petrobras (PBR) was off 1.09% to BRL39.02 and mining company Vale SA (VALE) was 1.22% lower to BRL42.84.
Banco Bradesco (BBD) was trading 0.77% lower to BRL36.07 and Banco do Brasil (BBAS3.BR) was 0.97% lower to BRL30.53.
Defensive stocks were early gainers. Power company AES Eletropaulo (ELPL6.BR) was up 0.37% to BRL34.88 and government-owned energy giant Centrais Eletricas Brasileiras, or Eletrobras (EBR), was up 0.4% to BRL25.35 per share.
Graphic analysis of the Ibovespa index shows decisive moves below 67,250 could eventually signal a move to 66,000, according to Hencorp Commcor.