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Brazil shares end flat before cenbank rate decision

SAO PAULO: Brazilian stocks finished flat on Wednesday as nervous investors hesitated to alter their market positions ahead of a key interest rate decision by the Central Bank, traders said.

The Sao Paulo stock exchange's Bovespa index of leading shares ended down 0.16 percent at 18,314 points, failing to sustain Tuesday's 4.7 percent rally triggered by a modest interest rate hike by the US Federal Reserve.

"Yesterday's rally was on the back of a US rate hike, which made some investors speculate that there could be room for rates to fall in Brazil," said Roberto Dotta Filho, fund manager at Tudor Asset Management. "But investors want to make sure that is going to be the case."

The Central Bank's policy-makers are due to finish their two-day meeting on interest rates later on Wednesday.

Brazilian investors are concerned that a big US interest rate hike could lure foreign investment away from emerging markets such as Brazil. As the Fed only raised the federal funds rate by a widely-expected 25 basis points, some investors began thinking Brazil might be able to trim rates.

But most economists polled by Reuters do not expect a change in the market's benchmark Selic reference rate. The monetary authority has held rates steady for five straight months, citing inflation risks.

Scattered speculation earlier in the session nevertheless spurred gains in some second-tier Brazilian stocks which missed out on Tuesday's rally.

Brazil's largest private bank Bradesco rose 2.87 percent while the holding firm for second-ranking bank Itau gained 3 percent. Banks could benefit from lower interest rates, which could lead to a growth in loans.

Some second-tier telecom stocks also outperformed the broader market. Tele Centro Oeste rose a spectacular 19 percent while Tele Leste Celular gained 10 percent. Traders said these stocks had long been undervalued.

By Wednesday's close, the Bovespa was up 3.7 percent on the month and 7 percent so far this year. The index dipped slightly into the negative zone at the close mainly due to a 0.27 percent loss in the market's most traded issue Telebras.

Total turnover was a robust 875 million reais ($506 million). -Reuters