Brazilian Market Shrinks On News that Lula Might Get Involved in Bribery Plot

Latin American issues declined across the board. The most prominent losses were seen in Brazil, where the country’s ongoing bribery scheme threatens to ensnare the President.

Mexican shares also declined on some profit taking, following a fresh record high this past Friday. Meanwhile, Argentina slid on a slow news day.


Brazil’s benchmark Bovespa Index slumped 860.44 points, or 3.39%, while Mexico’s benchmark Bolsa Index negated 183.23 points, or 1.28%. Argentina’s Merval Index tumbled 27.86 points, or 1.88%.


Brazilian issues plunged on the day, on word the country’s mounting political scandal may be linked to President Luiz Inácio Lula da Silva and Finance Minister Antonio Palocci.


Local magazine Veja reported over the weekend that key witness Marcos Valério de Souza threatened to implicate President Lula and Palocci in the bribery scheme unless he received a certain amount of money from the Workers’ Party.


De Souza has denied the magazine’s allegations, but is set to give further testimony before congress later this week.


Meanwhile, in the central bank’s weekly survey, economists forecast a further decline in 2005’s inflation rate to 5.55% from the 5.67% forecast a week ago. Economists also expect the Selic base rate to fall to 17.88% by the end of the year from last week’s estimate of 18.0%.


Elsewhere, the central bank announced a current account surplus of US$ 1.25 billion in June, nearly twice that of May’s result of US$ 615 million.


In corporate research news, a major investment bank initiated coverage on Energias do Brasil with an “outperform” rating. The bank believes the electric power holding firm’s stock price may have room for advancement after its initial public offering resulted in a lower-than-expected price.


Mexican issues turned lower, following another record high for the IPC Index this past Friday. Earnings news continues to dominate headlines.


On that front, airport operator Asur posted a near 20% leap year-over-year in its second-quarter net income to 134 million pesos on a rise in sales to 572.7 million pesos. Passenger traffic at the firm’s airports rose 6.7% from the year-ago period.


Separately, Cintra said that it has extended the deadlines for investors to submit letters of interest to participate in the privatization of AeroMexicana and Mexicana.


Meanwhile, conglomerate Alfa SA said that its second-quarter net profit leapt to 1.84 billion pesos from 1.12 billion pesos a year earlier, as sales rallied to 17.38 billion pesos from 14.29 billion pesos. The firm’s operating profit advanced to 1.67 billion pesos from 1.35 billion pesos.


Media conglomerate Grupo Televisa announced its intention to participate with a 25% stake in a new Mexican low-cost airline called Vuela Compania de Aviacion SA. The venture is set for launch next year.


Meanwhile, a major investment bank downgraded bottler Coca-Cola Femsa to “equal weight” from “overweight,” partly due to Mexico’s uncertain pricing environment.


Argentine issues also tumbled on the session, following the broader region’s markets into the red. News was scarce in the session, and investors continue to wait for Argentina to begin negotiations with the International Monetary Fund regarding a new loan accord.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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