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Latest Corruption Scandal in Brazil Harming Economy

Brazilian Latin American shares continued to fall today and witnessed accelerated declines in the latter half of the session, as the U.S. markets weakened. Mixed U.S. Federal Reserve comments influenced U.S. trading.

Meanwhile, Brazil again led the decliners in LatAm amid political turmoil. Mexico turned lower toward the end of the session, as U.S. shares lost steam. Argentina, meanwhile, posted slight gains.


Brazil’s benchmark Bovespa Index declined 530.16 points, or 2.07%, while Mexico’s benchmark Bolsa Index receded 60.40 points, or 0.46%. Argentina’s Merval Index edged up 4.23 points, or 0.28%.


Influencing U.S. trading, Federal Reserve Chairman Alan Greenspan noted at a bankers’ conference in China overnight that long-term interest rates are not easy to explain, but are not likely to change in the immediate future.


He added that the narrowing spread between long-term and short-term rates does not necessarily signal an economic slowdown.


Following Greenspan’s speech, however, comments from Federal Reserve Bank of Atlanta President Jack Guynn indicated that a “neutral policy stance” has not yet been reached, and rates will likely continue to rise. Guynn’s comments curtailed the U.S. market’s early advance.


Political concerns continued to roil Brazilian markets. Over the weekend, lower house deputy Roberto Jefferson indicated that the ruling Workers’ Party had bribed lawmakers for votes in congress.


The accusations have spurred investor concerns that there will need to be a congressional investigation into the alleged governmental corruption.


Also, the scandals could hinder the government’s reforms agenda, which could hurt the domestic economy.


Meanwhile, President Luiz Inácio Lula da Silva fired the heads of the Brazilian Reinsurance Institute (IRB) and postal service, which are both state run. Both companies have been implicated in the scandals.


On the economic front, the IBGE statistics institute announced that domestic industrial production was flat in April from March, following an increase in March.


Brokerage news was plentiful today. One major investment bank downgraded long-distance phone provider Embratel to “reduce” from “neutral” due to weak business prospects for the firm. Separately, a different investment house downgraded Gol to “market perform” from “outperform.”


Elsewhere, another broker lowered its rating on CST to “peer perform” from “outperform.” The brokerage said that lower prices for steel have led to reduced targets for the steel industry. Also, potentially higher raw material prices could hurt CST.


Mexican issues, meanwhile, turned lower in the latter half of the day, following mixed market movements in the U.S, its key trading partner.


In major corporate reports, wireless phone company America Movil reduced its 2005 profit expectations for Brazil amid higher costs stemming from larger-than-expected customer sign-ups.


Elsewhere, broadcaster TV Azteca and Universidad CNCI agreed to divide jointly owned Grupo Todito into separate Internet and pre-paid card businesses.


TV Azteca will control Todito’s online media operations, while Universidad will manage the pre-paid card business.


Argentine shares finished flat to higher, following two down sessions in which investors returned some of the gains acquired ahead of the country’s US$103 billion debt restructuring.


Elsewhere in Latin America, civilian protests continued for a second day in Bolivia’s capital city La Paz. Amid the turmoil, President Carlos Mesa offered his resignation.


Demonstrators have been active for weeks, demanding a greater say in Bolivia’s national government amid gas and food shortages.


Thomson Financial Corporate Group – www.thomsonfinancial.com


PRNewswire

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