Brazilian stocks drop as Chinese growth cools

LOS ANGELES (MarketWatch) � Brazil�s stocks fell Friday, deepening losses for the week following a soft quarterly growth report from the country�s largest trading partner, China.

Brazil�s Ibovespa BR:BVSP �closed 1.5% lower at 62,105.60, and all sectors waded in the red. Finance stocks were off nearly 3%, with Banco Santander Brasil BR:SANB11 �down 5%. Among the heavily weighted steel group, Gerdau GGB �dropped 1.1%, but shares of iron-ore miner Vale VALE �turned higher by 0.1%.

Shares of state-run oil producer Petrobras PBR �sloughed off 1.5%.

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The Ibovespa, which has fallen four out of the past five sessions, posted a weekly loss of 2.5%, its fourth consecutive weekly decline.

Investors in Brazilian assets received a downbeat update on quarterly growth in China, an important export market for Brazil. China�s National Bureau of Statistics said the economy expanded at 8.1% in the first quarter, the slowest pace of growth in 11 quarters. The latest rate was below analysts� expectations of 8.3% growth. In the fourth quarter of 2011, the economy expanded by 8.9%.

The first-quarter figures reflected weaker exports and construction activity. See more about China's slower growth in the first quarter.

While some analysts viewed the report as pointing to a gradual slowing, it also spurred worries among investors about lower demand from China for natural resources, such as iron ore supplied by Brazil.

An executive with price provider the Steel Index this week told Dow Jones Newswires that slowing in China hasn�t hit the iron-ore market. Read more about the iron-ore market.

While growth in China decelerated during the first three months of the year, Danske Research noted the country�s leading indicators � such as growth in money supply and credit and steel production � recently have started to improve.

This indicates �that growth should start to improve in the coming quarters. In this light, we also believe that the probability of a hard landing is currently declining, albeit the property market remains a concern,� Danske Research�s senior analyst Flemming Nielsen told clients Friday.

The GDP report didn�t sit well with investors in U.S. equities, with the S&P 500 Index SPX �ending the session down 1.3% at 1,370.26 and the Dow Jones Industrial Average DJIA �lower by 137 points. The major indexes logged their worst week this year. Read about Friday's slide in U.S. stocks.

The slower growth figures from China arrived at a time when the Brazilian government itself is enacting measures to bolster domestic growth.

Barclays Capital said Friday that despite a soft reading on Friday in monthly Brazilian retail sales, data flow �continue to indicate that the worst activity is behind us.�

Brazil�s IBGE statistics agency said the volume of sales in February fell 0.5% from January on a seasonally adjusted basis, which �interrupts a sequence of three months of positive rates,� it said in a statement. Sales in February from the same month a year ago climbed 9.6%.

January�s seasonally adjusted sales growth was upwardly revised to 3.3% from 2.6%.

February�s slowdown in spending �was driven largely by a payback in the same groups that pushed retail sales up in January,� wrote Barclays economist Guilherme Loureiro in a note, citing declines in sales at supermarkets and of food and beverages, as well as a contraction in apparel spending.

�Overall, our view is that February�s weaker reading is a one-off event rather than a trend,� said Loureiro. With �strong stimulus in the pipeline, we continue to see strong domestic demand.�

Barclays held to its first-quarter forecast for real GDP growth of 0.7% on a seasonally adjusted basis, in line with its 2012 projection for expansion of 3.3%. A weekly survey of economists conducted by the central bank indicated they expect, on average, growth of 3.2% this year.

Brazil�s economy expanded 2.7% in 2011, decelerating from 7.5% in 2010.

Retail stocks fell Friday, but in the consumer-discretionary group, shares of consumer-goods seller Hypermarcas BR:HYPE3 �rose 2.5% and apparel company Hering BR:HGTX3 �gained 1%. Tobacco company Souza Cruz BR:CRUZ3 �and brewer AmBev ABV �also outperformed the broader market.

Chile�s IPSA CL:IPSA �lost 0.5% to 4,527.46. The weekly decline was 2.6%, the worst weekly performance since late November.

Argentina�s Merval AR:MERV �slumped 2.4% to 2,502.08 on Friday. It gave up 2.2% for the week, marking the fourth straight weekly fall. Shares of YPF YPF �ended the daily session down 3.3%, remaining under pressure on government-takeover concerns.

In Mexico City, a steep decline in stocks in the final minutes of trading pushed the main IPC equity index MX:IPC �down more than 2%, with the move being investigated by exchange officials, according to reports. A representative for exchange operator Bolsa Mexicana de Valores wasn�t immediately available for comment.

The IPC had been lower by about 0.8% when roughly 15 minutes before the regular session closed, it slid 2.3% at 38,444.01.