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Chinese Decision to Strengthen Yuan Helps Brazil

Latin American stocks endured a mixed session, although gains from the heavily weighted Brazilian index pushed the broader region more toward the positive side.

A surprise revaluation to China’s currency and numerous financial releases from Brazil and Mexico were also in focus.


Meanwhile, Mexican issues turned lower alongside U.S. market weakness, as investors eyed fresh attacks on London’s transportation system. Argentine shares also declined.


Brazil’s benchmark Bovespa Index rose 137.61 points, or 0.54%, while Mexico’s benchmark Bolsa Index fell 34.17 points, or 0.24%. Argentina’s Merval Index declined 8.82 points, or 0.59%.


Brazilian issues continued to power higher amid a deluge of local and international reports. In the headlines today, investors cheered China’s sudden announcement that it will stop pegging the yuan to the U.S. dollar and will now let it trade within a 0.3% band against a basket of foreign currencies. The change is scheduled to take place tomorrow.


Also supporting local issues was another decline in crude oil prices, as Brazil is a net importer of the commodity. Yesterday, the U.S. Energy Department reported smaller-than-expected declines in inventories.


Also, a strengthening yuan would make Chinese exports more expensive, which could cool down the region’s economic growth. The potential result could be less demand for oil from China, which could pressure crude oil prices further.


In economic headlines, Brazil’s central bank kept the reference Selic rate unchanged at 19.75%, as expected.


Separately, the Brazilian Census Bureau, or IBGE, reported that the official jobless rate plunged to 9.4% in June from 10.2% in May. June’s result also came in below analyst expectations.


Meanwhile, earnings season is well under way. Brasil Telecom posted a 35% jump in its second-quarter net profit to 69 million reais from 51.1 million reais a year ago.


Revenues advanced 16.7% to 2.53 billion from last year, although EBITDA declined 10% to 827.6 million reais from 921.9 million reais due to higher interconnection costs and handset subsidies to compensate for fierce competition. The firm expects revenue growth for the year to be in line with the 14% advance seen in 2004.


Suzano Paper and Pulp said that the local currency appreciation against the greenback helped boost its second-quarter net profit to 258.4 million reais from 88.2 million reais. Still revenues and EBITDA fell modestly from a year ago.


Mexican issues retreated mildly following another set of record high closings on Tuesday and Wednesday. The Chinese yuan revaluation could make it easier for countries like Mexico to compete with China in exporting to the key U.S. market.


On the economic front, the National Statistics Institute, or INEGI, said the unemployment rate in June rose to 3.6% from 3.3% in May.


In earnings headlines, cement titan Cemex said its recent acquisition of RMC bolstered its second-quarter results. The firm said its net profit surged to US$ 733 million from US$ 247 million a year ago, as sales leapt to US$ 4.38 billion from US$ 1.95 billion.


The firm posted EBITDA of US$ 989 million, up 56% from a year ago and also raised its target for 2005 EBITDA to US$ 3.6 billion from US$ 3.5 billion.


Homex, meanwhile, said its second-quarter net profit jumped to 219.6 million pesos from 80 million pesos, as sales advanced to 1.57 billion pesos from 1.05 billion pesos.


Grupo Mexico said that stronger metals prices helped boost its second-quarter net profit to US$261 million from US$197.5 million on sales of US$1.30 billion, a 31% jump from a year ago.


Argentine shares continued to decline amid low volume. The country’s central bank said in its third-quarter inflation report that “the possibilities of achieving the indicated maximum target of 8% projected for this year are diminished.” A resurgence in consumer prices is partly to blame.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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