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Hopes of Lower Interests Bring Brazilian Market New Vigor

Brazil and Latin American shares maintained their recent winning streak, with Argentina this time posting the rally. Indications that Argentine discussions will soon commence with the IMF regarding a new loan accord bolstered local shares.

Also, Mexican stocks set a new record for the third-consecutive session, while Brazil turned positive following weakness earlier in the day.


Local markets received support from strength in the U.S., following a solid jump in U.S. June retail sales, tame consumer prices and strong tech earnings. Also, oil prices slumped to a level below US$ 58 a barrel.


Brazil’s benchmark Bovespa Index rose 64.04 points, or 0.25%, while Mexico’s benchmark Bolsa Index jumped 79.83 points, or 0.57%. Argentina’s Merval Index rallied 43.21 points, or 3.04%.


Brazilian shares continued to power higher, despite a bout of profit-taking earlier in the session. Brazilian issues have rallied throughout this week on hopes the central bank may soon reduce the Selic rate.


Also, the Brazilian Central Bank announced that it will make an advance payment on International Monetary Fund debt. The bank will pay US$ 5.12 billion in July, which wasn’t due until March 2006, and will save about US$ 82 million in interest payments.


In corporate news, brewing firm AmBev said that beer sales volume leapt 14.3% in the second quarter. Soft drink volumes grew 10.1% during the same period.


Also, steel maker CSN priced a US$ 250 million tap of its US$ 500 million perpetual bonds to yield 9.5%.


Meanwhile, a major investment bank initiated coverage of insurance firm Porto Seguro with a “neutral 2” rating and a 12-month price target of 26.00 reais. The brokerage noted that the firm held a strong position in a very competitive insurance market.


On the economic front, the São Paulo Federation of Industries, or Fiesp, said that industrial employment in São Paulo state rose 0.28% in June when compared to May’s figure. For the 12 months through June, the state’s industrial workforce increased by 4.6% over the prior 12-month period.


Mexican shares continued their record-breaking advance, hitting a record high for the third-straight session, as the U.S., a key domestic trading partner, posted strong market gains. Also improving local sentiment was strong U.S. economic data.


The Finance Ministry said that the federal government secured funds to pay all of its foreign debt amortization requirements in 2006 and 2007.


The government bought US$ 2.88 billion from the central bank’s international reserves by using money gained from recent financing operations. The move will negate the need for any debt issuance on international markets for those years by the government.


Meanwhile, the National Association of Supermarkets and Department Stores said that June sales leapt 9.2% compared to May and edged up 1% from the corresponding period a year ago.


Also, a large investment house upgraded Kimberly-Clark de Mexico SA to “buy” from “neutral,” based on the firm’s strong sales and minimal price competition.


Argentina surged on the day, after the International Monetary Fund said it will resume negotiations with Argentina for a new loan accord.


The IMF put a US$ 13.3 billion loan accord on hold last year pending the completion of the country’s US$ 103 billion debt restructuring.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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