Stage Set for a Rebounding Market in Brazil

Brazilian and Latin American shares rebounded strongly from recent selling pressure. Additionally, U.S. stocks posted robust gains, after falling to their lowest levels in recent months yesterday, as investors were emboldened by data showing a sharp rise in crude oil inventories.

On the economic front, U.S. fourth-quarter gross domestic product showed 3.8% growth in the final reading, unchanged from the previous estimate.

Brazil’s benchmark Bovespa Index advanced 627.70 points, or 2.43%, while Mexico’ s benchmark Bolsa Index firmed 71.62 points, or 0.57%. Argentina’s Merval Index surged 53.35 points, or 3.96%.

Brazilian issues climbed sharply, amid bargain hunting following declines Tuesday that took the benchmark Ibovespa index down 1.58%. Brazilian equities have been sliding since mid-February, which analysts blame primarily on rising U.S. Treasury bond rates.

However, analysts reported that the stage may now be set for a rebound, with both foreign and domestic funds eager to rebuild their blue-chip portfolios. Also, utility stocks rallied following the Brazilian government’s authorization of rate hikes for utilities.

CVRD announced that it has signed a new six-year contract with Qatar Iron and Steel Company to sell OASCO up to 2.66 million tons of iron ore pellets from 2005 through 2010.

Although the stock is 17% off its February record high, an influential brokerage named several reasons to still buy CVRD shares, including a likely doubling of the firm’s EBITDA this year due to a spike in iron ore prices.

Also, the brokerage noted that CVRD’s current share price is below the iron ore price hike levels, and demand for metals in most developing countries is likely to be robust. Buyers were active in response.

Shares of AmBev jumped. Yesterday, the company’s European parent, InBev, offered Brazilian shareholders of AmBev the option of swapping their shares for those of InBev or selling their AmBev shares for cash. Traders indicated that investors were roughly divided between cash and swaps.

Also, Embraer was in focus after stating Tuesday that its net cash position at the end of the year is projected to surge to US$ 400 million from US$ 22 million at the close of 2004.

Also, a major investment house said there could be upside to Embraer’s aircraft delivery forecast of 145 both this year and next “if we see increased order activity during the second half of the year.”

Turning to economic data, the Brazilian General Price Index, or IGP-M, advanced 0.85% in March, exceeding the 0.30% increase in February, the independent Getúlio Vargas Foundation said. That result was in line with estimates between 0.65% and 0.90%.

Elsewhere, Mexican bourses rose after five straight losing sessions, aided by a surge in the U.S. market. On the heels of a rise to record levels earlier this month, the market has succumbed to profit taking that many analysts viewed as overdue following the months-long advance.

While some analysts have cited external pressure for the declines, including weakness in U.S. and other regional shares and rising interest rates, local political developments also continue to weigh on Mexican stocks.

In the news, a legislative committee has postponed until Friday a recommendation to Congress on whether to strip Mexico City Mayor Andres Manuel Lopez Obrador of political immunity.

Such a vote could expose the popular mayor to criminal charges in a land dispute, upsetting his chances to run for president in 2006’s presidential elections.

Lopez Obrador denies ignoring a judge’s order for the city government to halt the construction of a road on a piece of expropriated land and claims the government is using the incident to try to keep him from running in the presidential election.

Meanwhile, Argentine receipts leapt, following recent declines, as investors took a favorable view of a U.S. court ruling. Late Tuesday, a U.S. court judge agreed to keep US$7 billion in defaulted bonds frozen until a U.S. federal appeals court can also consider the case.

However, Argentina’s Economy Ministry said in a brief statement last night that it was “satisfied” with the ruling, adding it hopes the appeals court will make a speedy decision so officials can meet their April 1st target to issue the new bonds under the restructuring.

Thomson Financial Corporate Group



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