Profit Taking Leads Brazil Market Downhill

Latin American issues mostly declined under the weight of a sharp Brazilian fall. Profit-taking likely played a role today, after Brazil tallied impressive gains over the past two sessions.

Meanwhile, Mexico again reached a record high amid a flurry of economic reports. Argentine issues edged higher on few news items.


Brazil’s benchmark Bovespa Index slumped 451.14 points, or 1.75%, while Mexico’s benchmark Bolsa Index advanced 46.58 points, or 0.33%. Argentina’s Merval Index edged up 2.80 points, or 0.19%.


Brazilian issues turned sharply lower, as investors cashed in on recent market gains. Market watchers are also closely monitoring emerging developments regarding the country’s political turmoil.


Also, China’s currency revaluation remained on investors’ monitors, as Brazilian exports may become more competitive with Chinese products. Meanwhile, the government exchanged US$ 4.4 billion in C-Bonds for Global Bonds that mature at a later date.


On the economic front, the IBGE statistics department said its July mid-month inflation measure was 0.11%, boosted by the phone industry.


Meanwhile, state-run oil firm Petrobras signed a US$ 600 million contract to rent an offshore oil platform from Italy-based Saipem. The contract is for nine years with an option for a three-year extension.


In earnings releases, Klabin Paper & Pulp posted a second-quarter net profit of 90 million reais, down from the 111.4 million reais posted in the corresponding quarter a year ago.


The firm said the appreciation of the real compared with the dollar was to blame for the decline. Still, revenues advanced to 720.1 million reais from 659.5 million reais.


Within the banking sector, according to news sources, Unibanco SA completed a US$ 500 million bond issue, an increase of US$ 250 million from its initial offer, as demand was strong.


Mexican stocks regained positive ground, following a small decline yesterday. So far, second-quarter financial releases have mostly been in line with analyst expectations.


In economic reports, as expected, the central bank decided to leave the corto, or the daily money market liquidity restriction, unchanged at 79 million pesos. The bank also reiterated that, “internal monetary conditions shouldn’t be relaxed.”


The central bank reported that the consumer price index rose 0.28% in the first half of July, above expectations, following a 0.15% decline during the first half of June.


The most recent reading pushed the annual inflation rate to about 4.5% from 4.3% at June’s end. Separately, the trade deficit narrowed significantly in June to US$ 22 million from US$ 46 million in May, thanks to higher crude oil exports. In June 2005, the deficit stood at US$ 514 million.


Major investment banks were active with research notes today, following recent corporate earnings reports. One brokerage house raised its price target on cement titan Cemex to US$ 55 from US$ 44.74 due to solid second-quarter revenue and higher-than-expected volumes.


Separately, another bank upgraded soft drink bottler Arca to “buy” from “neutral.” The investment bank cited lower raw material costs and improving competitive dynamics as part of the reason for the more bullish outlook on the firm.


Argentine receipts were little changed on the session. Economy Minister Roberto Lavagna said the country raised export taxes on dairy products to 15% from 5% in a bid to mitigate price increases and inflation pressures. The measure is set to remain in place for 180 days, but will be open to review in 90 days.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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