Brazil Stocks Plunge as Tax Saps Demand for IPOs, Homebuilders
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By Paulo Winterstein and Camila Fontana

Oct. 28 (Bloomberg) -- Brazilian stocks plunged, heading for the biggest two-day drop since January, as a tax on share purchases sapped demand for homebuilders and metal producers dropped on concern the profit outlook doesn’t justify prices.

Cetip SA - Balcao Organizado de Ativos & Derivativos, Brazil’s biggest clearing house, dropped as much as 14 percent in its first day of trade as the so-called IOF tax of 2 percent reduced demand from foreign investors. Homebuilders Rossi Residencial SA, Gafisa SA and Cyrela Brazil Realty SA Empreendimentos & Participacoes slumped more than 5 percent after recent rallies sent valuations near the highest levels in more than a year. Steelmaker Gerdau SA fell 5.6 percent after rival ArcelorMittal reported weaker-than-expected profit.

“The IOF was deadly for the bourse,” said Paulo Possas, who manages about $60 million as chief executive of Eagle Capital in Sao Paulo. “A drop that could have been 2 turned into a drop of 4. Someone that may have entered Brazil after a drop produced good prices now probably won’t come back to the market.”

The Bovespa index dropped 3.8 percent to 60,776.42 at 12:52 p.m. New York time. It’s poised to drop 10 percent from the 2009 peak on a closing basis. The index has fallen more than 7 percent since the government last week imposed a 2 percent tax on foreign purchases of equity and fixed-income assets.

The real slid 0.6 percent to 1.7551 against the dollar.

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