Brazil’s Bribery Scandal Still Dragging Down Economy

Latin American markets were again broadly lower, with Mexico leading the decliners. Meanwhile, Brazilian issues posted more modest declines, as investors monitor the latest developments in the country’s political scandal.

Argentina squeezed out small gains. Mexico witnessed a second day of profit taking, following a string of positive sessions.


Brazil’s benchmark Bovespa Index declined 43.43 points, or 0.17%, while Mexico’s benchmark Bolsa Index gave up 106.34 points, or 0.78%. Argentina’s Merval Index edged up 2.71 points, or 0.19%.


The Brazilian market maintained its negative stance, as investors awaited testimony from two key figures regarding bribery allegations tied to the governing Workers Party.


Steelmakers added pressure, as investors worry that declining prices will hinder corporate profits. CSN posted a sharp drop on the day.


Turning to corporate news, a major investment house commented that Portugal Telecom may sell its stake in Brazil’s Vivo and use the proceeds to purchase Telemar.


The brokerage stated, “Our opinion has been that it would make little strategic sense for Portugal Telecom to exit its growth engine, Vivo, in order to add a cash cow…however, certain events in the last year could make this scenario more plausible. Some of the events may include the very competitive wireless market facing Vivo.”


In other research notes, a brokerage initiated coverage on cable television firm Net Servicos at “underweight.”


CVRD announced that it will invest US$ 195 million by 2007 to expand the Itaqui port near São Luí­s on the northern coast in the state of Maranhão.


Also, oil and gas producer Petrobras approved contracts for five of U.S.- based Transocean’s rigs that will generate nearly US$ 1 billion in revenues.


Mexican issues continued to decline today, following the market’s recent positive run. U.S. shares, meanwhile, continued to stick close to the sidelines.


In corporate news, wireless carrier America Movil announced yesterday that it intends to invest approximately US$ 2 billion per year through 2010. The firm also hopes to have 100 million clients within two years.


Meanwhile, an investment bank raised its price target and 2005 earnings forecast on Cemex, following the cement titan’s recent better-than-expected second-quarter guidance.


Argentine issues edged up, with few news items out to direct trading. Investors are closely monitoring potential developments between the country and the International Monetary Fund.


In economic news, the national statistics agency, Indec, said that Argentina posted a current account deficit of US$ 5 million in the first quarter, reversing a surplus of US$ 503 million in the year-ago period.


Elsewhere in Latin America, a major investment house upgraded Chile’s second largest bank, Banco de Chile, to “peer perform” from “underperform,” citing “solid” net income during April and May for the move.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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