Bulls Stampede in Brazilian Market: Stocks Jump 13.42%

Brazil stock exchange After five days of steep decline the Brazilian market went into extremely high gear, this Tuesday, October 28, zooming up 13.42%, the second biggest gain of the year, losing only to the 14.66% jump registered on October 13.  The Ibovespa, the main index of Bovespa, Brazil's stock exchange, closed at 33,386 points after trading 4.9 billion reais (US$ 2.3 billion).

The surprising result, however, was far from encouraging for those who have been investing in Brazil. The accumulated Bovespa losses still total 47.7% for the year and 54.6% compared to the market peak last May 20. 

Meanwhile, after sharp gain in recent weeks the dollar went down a few notches for the second straight day. In the first two days of the week the greenback lost 6.23%, closing at 2.183 reais per dollar. The American currency has shot up 14.5% since the beginning of the month.

Brazilian investors are betting that the Fed will cut interest rates in the US again, this Wednesday, encouraging foreigners to go back to Brazil's stock market. All the 66 companies listed in the Ibovespa index went up.

Finance Minister, Guido Mantega, announced that the government will offer a new 3 billion reais (US$ 1.4 billion) line of financing to help the building sector. The news was enough to catapult construction companies trading at Bovespa. Cyrela's shares for example, climbed up 33.55%, to 10.35 reais. Gafisa also had a dramatic 29.5% jump to 13.99 reais.

It was also a sunny day for financial institutions and commodity-linked companies. The steel firm Companhia Siderúrgica Nacional's shares gained 21.7% making their share a 28 reais value. Among banks, Unibanco got the best of it, reaping a 13.9% increase to 11.71 reais a share.

Despite the market euphoria Mantega didn't have an optimistic tone. Talking to entrepreneurs participating in the 3rd National Encounter of the Industry, the minister told them that the financial crisis will last long and will have strong impact in the real economy. "It's going to slow down the whole world. This is becoming clear right now."

Mantega believes that  lack of credit will be one of the main causes for the reduction of economic activity throughout the world. "It is impressive," he said, "how the lack of credit can propagate to the world economy. There's a forecast of economic recession that I hope will not turn into a depression. This is the challenge for the advanced countries. The economic packages only mitigated the problem, but the credit problem hasn't been solved yet."

The minister also said that the Brazilian government is considering the possibility of delaying charging taxes as a way to deal with the crisis. That would be in response to a request made by Armando Monteiro Neto, the president of the CNI (National Confederation of Industries).

Trade Deficit

For the eighth time this year, Brazil posted a weekly trade deficit. According to figures supplied by the Brazilian Ministry of Development, Industry and Foreign Trade, exports in the fourth week of October totaled US$ 4.023 billion, a figure lower than that of imports (US$ 4.121 billion), resulting in a trade deficit of US$ 98 million.

The last weekly trade deficit this year had been recorded in the fourth week of August, and totaled US$ 840 million. So far this month, the balance of trade is running a surplus of US$ 776 million, as against US$ 3.432 billion during the same period in 2007.

So far this month, exports total US$ 14.964 billion and imports, US$ 14.188 billion. In the accumulated result for the year, the trade surplus is now US$ 20.432 billion, the result of US$ 165.832 billion in exports and US$ 145.4 billion in imports. From January until the fourth week of October 2007, the trade surplus was US$ 33.589 billion.

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