By Alexander Ragir Feb. 8 (Bloomberg) -- Brazilian stocks gained, halting a three-day retreat, as higher commodity prices boosted materials producers and airlines rallied on prospects for more travel as the economy recovers. Vale SA, the world’s largest iron ore miner, advanced as metals prices increased for the first time in four days. Tam SA, Brazil’s biggest airline, jumped after the International Air Transport Association said it has seen a “significant improvement” in airline business confidence in January. The 63-stock Bovespa index added 0.8 percent to 63,249.59 at 9:22 a.m. New York time, paring its drop from a 19-month high on Jan. 6 to 11 percent. Forty-six stocks rose on the index while 17 fell. The real added 0.4 percent to 1.8724 per dollar. “We recommend investors buy Latin American stocks on any additional market weakness,” wrote Morgan Stanley Strategist Guilherme Paiva in a note to clients dated yesterday. “The current market correction does not change our positive view for Latin American equities in 2010.” Vale rose 1.2 percent to 41.30 reais as the Bloomberg Base Metals 3-Month Price Commodity Index advanced 1 percent. MMX Mineracao & Metalicos SA, the iron ore company controlled by Billionaire Eike Batista, rose 2 percent to 13.60 reais. The biggest tumble in developing-nation stocks in 11 months isn’t deterring investment strategists at Morgan Stanley, Credit Suisse Group AG and Goldman Sachs Group Inc. from being bullish. Morgan Stanley’s Jonathan Garner predicts the MSCI Emerging Markets Index will surge 34 percent by the end of 2010 as corporate profits jump 40 percent. Credit Suisse Estimates Sakthi Siva of Credit Suisse says declines in the 22- country gauge may be limited to 5.3 percent. Goldman’s Thomas Deng recommends investors buy in China, where he forecasts the CSI 300 Index will gain 36 percent in the next 10 months. Gol Linhas Aereas Inteligentes SA, Brazil’s second-biggest airline, gained 1.9 percent to 23.18 reais after reporting on Feb. 5 that total occupancy rates rose in January. “January traffic statistics confirm that Gol’s earnings trend should improve in” the first half of the year, wrote Banco Santander analyst Caio Dias in a note to clients. The data supports “our bullish view on the airline’s shares,” he wrote. Tam, the biggest airline, rose 2.3 percent to 33.54 reais. Gains for the Bovespa were limited by losses at retailers such as Lojas Americanas SA and B2W Cia. Global do Varejo after traders raised bets for interest rate increases this year on concern the economic rebound will spur inflation. Economist Forecasts Economists, who since Jan. 18 have been forecasting inflation to accelerate this year above the government’s 4.5 percent target, increased their year-end inflation forecast to 4.78 percent, a central bank survey published today shows. Last week they had forecast inflation of 4.62 percent. Lojas Americanas fell 0.6 percent to 12.52 reais. B2W Varejo slipped 0.8 percent to 35.70 reais. The yield on interest rate futures contracts due July 2010 rose two basis points, or 0.02 percentage point, to 9.14 percent as some of Brazil’s biggest banks predicted the central bank may increase interest- rate increases as soon as next month. Banco Santander SA’s local unit, Brazil’s third-biggest private bank, pushed forward last week its call for the central bank’s first increase of the benchmark 8.75 percent rate to March 17 from April 28. Sao Paulo-based Itau Unibanco Holding SA, the country’s largest private bank, said last week that the anti-inflation tone in the central bank’s latest policy meeting minutes “tilt the odds in favor” of an increase in March. Earlier Drop The Bovespa has dropped 4.7 percent in January as China, Brazil’s biggest trading partner, curbed bank lending to slow its economy and contain inflation. The real has dropped 6.7 percent against the dollar this year, the steepest retreat among 16 major currencies tracked by Bloomberg. Brazilian stocks last corrected in the final two weeks of October, when the Bovespa fell 11 percent after the government imposed a tax on foreigners’ purchase of stocks and bonds to stem the real’s appreciation. The real soared 33 percent in 2009, the best performance among 26 emerging-market currencies tracked by Bloomberg. To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net

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