Low Inflation and High Surplus Warms Up Brazilian Market

Latin American stocks regained some of the ground lost last Friday, when new developments in the Brazilian political scandal threatened to derail markets further. Still, a key witness to the case denied the main charges against the PT Party over the weekend.

Mexican shares edged higher as earnings season kicks-off. Argentine stocks also gained despite a disappointing economic report.

Brazil’s benchmark Bovespa Index advanced 99.55 points, or 0.39%, while Mexico’s benchmark Bolsa Index rose 20.01 points, or 0.14%. Argentina’s Merval Index jumped 10.09 points, or 0.69%.

Brazilian issues turned higher following earlier weakness, as investors await the country’s upcoming interest rate meeting on Wednesday.

The central bank’s weekly survey of economists showed that inflation expectations for 2005 fell to 5.67% from 5.72% last week.

Also, the trade surplus for the second week of July was US$ 985 million, bringing the total so far for 2005 to US$ 22.4 billion.

Regarding the latest on the political scandal, over the weekend, Marcos Valério de Souza, a key witness to the investigation, said that the governing Workers Party did not report some of the funds used in its electoral campaign.

However, de Souza denied that the PT Party was involved in a bribery scheme that involved paying cash for votes in congress.

In corporate headlines, VCP Paper and Pulp reported a 6% rise in its second-quarter net profits to 211 million reais from the corresponding period a year ago. EBITDA arrived at 260 million reais, down from 342 million reais last year. Also, net revenue slipped to 683 million reais from 763 million reais.

Elsewhere, state-run energy firm Petrobras announced that its chief financial officer, Jose Sergio Gabrielli, was named president of the firm. Gabrielli replaced José Eduardo Dutra, who resigned last week in order to run for public office next year.

Mexican shares posted modest gains, as investors wait for the region’s corporate earnings season to fully get under way. Traders had a taste today with Desc’s results.

In earnings news, conglomerate Desc SA announced that strong results from its chemicals and food businesses helped boost its second-quarter net profit to 2.5 million pesos, reversing a loss of 146.6 million pesos last year.

Sales advanced to 6.10 billion pesos from 5.93 billion pesos, while operating profit jumped to 286.6 million pesos from 253.8 million pesos a year earlier.

Retailer Coppel SA was provided a US$ 35 million loan from the International Finance Corp., a unit of the World Bank, to help support the firm’s expansion plans.

Meanwhile, state-run oil firm Pemex said that its average crude oil output fell to 3.43 million barrels per day in June from 3.44 million b/d in May. Also, the firm exported an average of 1.80 million b/d last month, down from 1.85 million b/d in May.

Argentine issues advanced on the session, amid a dearth of corporate reports or further developments between the nation and the International Monetary Fund regarding a new loan accord.

On the economic front, the national statistics agency, or INDEC, said that industrial production fell 0.5% in June from May due to shortages in natural gas supplies, which periodically forced the closure of some factories. Production growth slowed to 6.4% year-over-year in June from 8.5% in May.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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