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Low Inflation in US Boosts Brazilian Market

Brazilian and Latin American markets leapt along with U.S. shares, after tame U.S. CPI data indicated the Federal Reserve may be less aggressive in lifting interest rates. The move also boosts investor appetite for riskier emerging market assets.

Brazilian receipts surged ahead of the country’s central bank decision on interest rates, due out this evening. Also, Mexican shares rallied, and Alfa announced the sale of its stake in Hylsamex. Argentina also witnessed solid gains.


Brazil’s benchmark Bovespa Index jumped 485.36 points, or 1.99%, while Mexico’s benchmark Bolsa Index leapt 288.28 points, or 2.32%. Argentina’s Merval Index advanced 14.60 points, or 1.01%.


In U.S. economic headlines, the Consumer Price Index rose 0.5% in April after climbing 0.6% in March, while the core index was flat after growing 0.4% the previous month. It was the smallest change in the core since November 2003.


The data helped mitigate some of the worries about rising inflationary pressure sparked by yesterday’s producer price report.


Brazilian shares surged, as concerns about aggressive U.S. interest rate hikes eased on the milder CPI report. The country’s shares also managed gains despite local rate hike concerns.


The Brazilian Central Bank is set to release its decision on whether or not to raise the reference Selic interest rate this evening. There is no clear agreement from economists as to what the central bank will decide.


Meanwhile, the Fipe research institute’s Consumer Price Index fell to 0.58% in the four weeks ended May 15, slowing from the 0.68% rise recorded for the four weeks ended May 7.


Within the utility sector, Sabesp was active, after a major investment bank maintained its positive stance on the stock and noted that it believes the firm will meet its dividend forecast.


Elsewhere, electric power utility Light Serviços de Eletricidade SA said that it received approval from creditors to restructure overdue debts worth about 1.77 billion reais.


Elsewhere, Molson Coors Brewing said that it will not make further cash investments in its Brazilian business unit, Cervejarias Kaiser, until it is more comfortable with its growth prospects in Brazil.


Mexican shares also benefited from mild U.S. inflationary data and a steep ramp up amid U.S. markets in general.


That sentiment overshadowed yesterday’s lower-than-expected domestic GDP figure for the first quarter. Today, some analysts reduced their full-year growth expectations for Mexico.


In major deal news, conglomerate Alfa SA announced that it will sell its 42.5% stake in steel unit Hylsamex to Argentina’s Techint in a deal valued at US$ 2.25 billion. Alfa A shares leapt in response.


Meanwhile, Argentine shares bounded higher along with the broader Latin American markets. Investors continue to await the conclusion of the government’s US$ 103 billion debt swap.


Elsewhere in Latin America, Venezuelan Oil Minister Rafael Ramirez said that PdVSA will begin paying contracted oil firms local currency instead of U.S. dollars.


Currency controls had been installed by the government in early 2003; however, PdVSA has been reimbursing oil firms in U.S. dollars.


Thomson Financial Corporate Group
www.thomsonfinancial.com


PRNewswire

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