Brazil Tumbles While Waiting Interest Rate News

Latin American markets turned decidedly lower today, after a positive session yesterday. Negative regional sentiment was compounded by sharp declines in U.S. markets. Brazil slumped, following three-consecutive positive sessions. Meanwhile, Mexican and Argentinean investors digested lackluster economic growth data.

The American economy suffered from stronger-than-expected CPI data, disappointing industrial production and capacity utilization figures and a warning from Wal-Mart Stores that surging oil prices are pressuring its current-quarter results.

Brazil’s benchmark Bovespa Index plunged 294.92 points, or 1.08%, while Mexico’s benchmark Bolsa Index tumbled 283.51 points, or 1.91%. Argentina’s Merval Index declined 8.35 points, or 0.56%.

Brazilian issues returned some of the impressive gains tallied recently. Investors also focused on a fresh batch of earnings reports and continued awaiting tomorrow’s central bank meeting on interest rates.

On the economic front, the Brazilian Census Bureau, or IBGE, said that retail sales jumped a seasonally adjusted 1.8% in June from the prior month. June’s result leapt 5.31% when compared to the year-earlier figure; although, that result was not seasonally adjusted.

In earnings headlines, state-run oil firm Petrobras said that its second-quarter net profit leapt to 4.93 billion reais from 3.30 billion reais a year earlier, aided by a jump in oil exports amid a hefty rise in crude oil prices. Net operating revenue jumped to 32.36 billion reais from 28 billion reais last year, while EBITDA surged to 11.809 billion reais from 8.652 billion reais.

Within the electric power utility group, Copel said that its net profit advanced to 196.7 million reais in the first half from 172.8 million reais last year. The firm cited an increase in its customer base and rising public utility rates for the improved result.

Gross revenue climbed to 3.271 billion reais from 2.613 billion reais last year, while EBITDA slipped to 488.1 million reais from 491.6 million reais a year ago.

Separately, Light Serviços de Eletricidade said that it swung to a second-quarter net profit of 10.1 million reais, reversing a year-earlier loss of 16.9 million reais, as a rise in sales volumes of energy benefited the most recent result.

Net revenue climbed to 1.17 billion reais from 1.04 billion reais, while EBITDA dipped to 64.2 million reais from 266.1 million reais.

Last night, Sabesp said that it swung to a second-quarter profit of 335.7 million reais from a year-earlier loss of 73.3 million reais, while operating profit was 494.9 million reais, compared to last-year’s loss of 74.3 million reais. Net revenue climbed to 1.23 billion reais from 1.038 billion reais.

Meanwhile, the country’s biggest grocer, CBD, said that its same-store nominal sales increased 3% in July, compared to the year-ago figure. After an inflation adjustment, same-store sales declined 3.4%. Gross sales advanced 4.8% in July, reaching 1.32 billion reais, while net sales rose 6.2%.

Mexican shares turned lower, after the market reached another record high yesterday. U.S. market weakness also dampened local market sentiment. On the economic front, the Finance Ministry reported that Gross Domestic Product grew a disappointing 3.1% during the second quarter, compared to 2.4% growth in the first quarter.

Brokerage notes were in focus today. A major investment bank upgraded airport operator Asur to "outperform" from "peer perform" due to the company’s future growth prospects. The bank also initiated a year-end fair value of $47 per American Depositary Receipt and $52 for 2006. Asur shares climbed in response.

Separately, another large investment house downgraded brewing and bottling firm Femsa to "hold" from "buy," as its shares approach fair value. The bank raised its 12-month price target on the firm’s ADRs to $76 from $70. Femsa shares slumped on the day.

Meanwhile, Argentinean stocks were broadly lower amid a lackluster gross domestic product report. For the June period, the national statistics agency, or INDEC, said the preliminary reading of the GDP showed growth of 0.1% month-on-month, but surged 8.6% when compared to the year-earlier period.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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