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Lower than Expected Inflation in the Horizon for Brazil

Latin American shares moved in different directions today, with Brazil trending lower and Mexico posting gains. Meanwhile, Argentine markets were closed in recognition of Flag Day.

U.S. markets weaved in and out of positive territory, but ultimately finished lower amid another advance in oil prices to a level beyond US$ 59 a barrel. Also pressuring U.S. shares was a larger-than-expected decline in May’s leading indicators.

Brazil’s benchmark Bovespa Index erased 47.38 points, or 0.18%, while Mexico’s benchmark Bolsa Index advanced 63.40 points, or 0.46%.

Brazilian issues eased on the day, following recent strength on dissipating political concerns. Still, investors are somewhat wary of further bribery allegations implicating state-run firms and the ruling Workers Party. Last week, the former presidential chief of staff, José Dirceu, resigned amid corruption claims.

Also pressuring Brazil, which imports oil, were security concerns in Nigeria and possible strikes amongst Norwegian oil workers, which helped push crude oil prices past US$ 59 a barrel.

In economic news, the University of São Paulo’s IPCA-Fipe inflation figure arrived at 0.07% for the four weeks ending June 15, below analyst expectations.

Separately, the central bank’s weekly survey of economists showed that 2005 inflation expectations continued to decline.

Participants in the survey expect the main IPCA consumer price index to advance 0.30% in June, 0.55% in July and 6.16% in 2005.

All three forecasts declined from the prior week’s expectations. The report follows the central bank’s end to its monetary tightening cycle last week.

Turning to corporate reports, state-run oil firm Petrobras announced its intentions for a 4-1 share split, a dividend payment and the formation of an external auditing committee that will focus on complying with U.S. rules associated with the Sarbanes-Oxley law.

Meanwhile, a major brokerage firm downgraded grocer CBD to “peer perform” from “outperform” and slashed its year-end price target to US$ 23.50 from US$ 25. The broker cited “deteriorating food-sector retail trends” as part of the reasoning behind the move.

Airline Varig won a temporary injunction from the U.S. Bankruptcy Court in Manhattan, which bars creditors from obtaining its planes.

Under a new Brazilian bankruptcy law, Varig has 60 days from the date of its bankruptcy filing to provide a recovery plan to creditors.

Separately, Varig confirmed that discussions have ceased with TAP Air Portugal, in which TAP would purchase a 20% stake in the Brazilian carrier.

Mexican shares bucked the broadly lower trend in Latin America and the U.S. by posting gains. Investors focused on financial guidance from the world’s third-largest cement maker.

Cemex announced that it expects 2005 EBITDA to exceed its current estimate for US$ 3.5 billion. The firm expects second-quarter EBITDA of US$ 970 million, up from US$ 635 million in the corresponding period a year ago.

Revenue for the quarter is expected to reach US$ 4.4 billion, up from US$ 1.9 billion last year. Cemex credits higher demand and the purchase of RMC Group for the rosier outlooks.

Thomson Financial Corporate Group – www.thomsonfinancial.com


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