The shares in Tele Norte Leste Participacoes plunged 3.18 percent to 42.30 reais. Traders said the US inflation news made it more difficult for investors to exercise the 44 reais option on the stock.
The core US producer price index, which strips out food and energy prices, shot up 0.8 percent in January, the biggest gain since December 1998. This prompted worries the Fed could hike interest rates more aggressively than expected.
"The market had been very optimistic and this was a shower of cold water," said Roberto Dantas, head of trading at Banco Schahin in Sao Paulo, referring to the US PPI data.
"But we have to wait a bit more. The interest rate outlook hasn't changed yet."
Other analysts, like Alexandre Sant'Ana from ARX Capital Management in Rio de Janeiro, said investors will be looking forward to see Wednesday's US consumer price index, or CPI, before changing their investment positions.
"Perhaps that might happen if there is a perception of higher consumer inflation," he said.
Shares of Telesp Celular Participacoes were the biggest decliner on the Bovespa index, falling 7.61 percent to 7.16 reais, after the mobile phone company forecasted marketing investments will remain high and margins will not recover significantly in 2005.
The company, which operates under the Vivo brand and is owned by Spain's Telefonica and Portugal Telecom, posted earlier in the day a wider quarterly loss and smaller operating profit, pressured by marketing and operating costs.
The Brazilian real weakened 0.43 percent to 2.574 reais per US dollar, also pressed lower by central bank dollars purchases on the spot market, traders said.
Such a move is seen as designed to avoid further appreciation of the currency, which remains at its strongest point in 32 months and may hurt exporters.