S&P Downgrades Brazil

Brazilian and Latin American equities climbed, alongside gains in U.S. stocks on increased merger activity and reportedly high voter turnout rates for Iraq’s weekend election.

Separately, Standard & Poor’s upgraded Mexico to its “core holding” in Latin America, while lowering Brazil to a smaller overweight.


Still, overall it recommends selling Latin American stocks if the recent rebound continues, commenting that the “better mood” in the region’s equities “is likely to be followed by new weakness.”


Brazil’s benchmark Bovespa Index surged 401.41 points, or 1.67%, while Mexico’s benchmark Bolsa Index rose 56.59 points, or 0.43%. Argentina’s Merval Index fell 8.13 points, or 0.59%.


Brazilian shares rose, aided by strong results from the country’s leading retail bank. On the earnings front, Banco Bradesco reported that its net profits climbed 48% to 1.058 billion reais in the fourth quarter from the year-ago period.


The company’s chief executive attributed the result to “the expansion of both quantity and quality of the loans portfolio agreements with retail chains, customer growth, and growth of the economy.”


Full-year 2004 net profits advanced 33% to 3.060 billion reais from 2003. Bradesco’s stock advanced.


Also, Brazilian national oil company Petrobras, U.S.-based Occidental Petroleum and Australia’s Woodside Petroleum were awarded offshore exploration and production blocks Saturday in Libya’s first licensing round since international sanctions were lifted, according to a source at the awards ceremony in Tripoli.


Amid other individual stock movement, shares of government-run electric power utility Eletrobrás experienced the rebound some analysts had forecast following a recent sell-off, as a senior government official indicated the firm is healthy and prepared to invest in 2005.


Separately, Mexican issues advanced to a record closing high, powered by strength in U.S. equities.


Additionally, Standard & Poor’s raised its call on Mexican sovereign debt one notch to “BBB.” On the economic front, with the U.S. Federal Reserve projected to raise the federal funds rate at Wednesday’s meeting, further monetary tightening is expected in Mexico.


In its comments last Friday, Mexico’s central bank maintained its stance that local interest rates should continue to reflect tighter monetary conditions in the U.S.


Bank of Mexico Governor Guillermo Ortiz said he foresees core inflation remaining at its current level around 3.8% for several months, before beginning to decline.


He said the bank expects inflation measured by the Consumer Price Index to decline in 2005 to within the bank’s 2% to 4% target range.


In deal news, conglomerate Alfa SA said that its auto parts unit Nemak has purchased the German concern Rautenbach. Alfa did not disclose the financial terms of the acquisition, which it said will strengthen Nemak’s presence in the European market. Alfa rose on the session.


Also, Mexican home construction firm Desarrolladora Homex SA announced that it sold over 21,000 homes in 2004 and foresees increasing that number to at least 27,000 this year. Homex surged.


Elsewhere, Argentina’s market slipped, beginning an important week for the country’s debt restructuring with a return to weak volumes. On Friday, the government concludes a three-week preferential period for small bondholders.


While this deadline had initially been viewed as a key one for investors, who continue to await significant new developments on acceptance rates, analysts now believe that equities could continue sideways movement until closer to the end of the offer period.


According to an Argentine Economy Ministry statement, approximately 26.6% of eligible defaulted bonds had been tendered in Argentina’s US$ 103 billion debt restructuring as of Friday.


The statement is part of a weekly filing that the Argentine government is required to make with Italian securities regulator Consob, the Italian stock exchange and three Italian-based newswires on the progress of its six-week exchange.


Thomson Financial Corporate Group
www.thomsonfinancial.com


PRNewswire

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