Brazilians, Relieved, Take Profits and Run

Latin American markets reversed course today and turned lower, as yesterday’s enthusiasm for Brazilian stocks gave way to serious profit-taking today.

U.S. markets also declined, amid disappointing existing home sales data and continued strength in crude oil prices, which remain well above US$ 65 a barrel. Mexico and Argentina were also negative on the day.


Brazil’s benchmark Bovespa Index tumbled 491.40 points, or 1.80%, while Mexico’s benchmark Bolsa Index receded 52.36 points, or 0.35%. Argentina’s Merval Index fell 6.82 points, or 0.44%.


Brazilian stocks gave up most of the gains earned in yesterday’s session. Yesterday’s trading was partly a relief rally, as investor concerns about Finance Minister Antonio Palocci were soothed after he once again reiterated that he was not involved in a kickback scheme in the 1990s, as alleged by an ex-aide.


Separately, ex-congressman Waldemar Costa Neto was due to testify before a congressional investigative committee today. Neto has accused President Luiz Inácio Lula da Silva of knowing about campaign finance violations during the last election, which President Lula denies.


On the corporate front, private bank Banco Itaú announced that its board of directors approved a 9-to-1 split for its domestic shares and a 4-to-1 split for American Depositary Receipts.


Mexican issues also eased, alongside U.S. market weakness. In economic news, the Finance Ministry reported that the country’s trade gap widened in July to US$ 619 million, above analyst expectations. In June, Mexico’s trade deficit was US$20 million and in July 2004, the country’s deficit was US$ 831 million.


Meanwhile, the Bank of Mexico reported that the current account deficit in the second quarter was US$ 19 million, well below the US$ 200 million tallied in the corresponding period a year ago. The most recent result brings the current account deficit for the first six months of the year to US$ 2.54 billion, or 0.7% of gross domestic product.


Talks between Grupo Mexico and workers at copper mine La Cananea continue to progress regarding contract revisions. However, the group warned that further progress is needed to reach an agreement on contract obligations for the productivity bonus if Grupo Mexico wants to avoid a planned August 27 strike.


Elsewhere, fast food group Alsea SA announced last night that it bought a 60% stake in Grupo Alimentos y Diversion, a franchisee for Chili’s restaurants in Mexico. Financial details were not disclosed.


Argentina witnessed a modest decline today, following yesterday’s impressive advance. The Confidence in Government Index showed a 17% increase in confidence in August, versus a 10% decline in July. The index now rests at 2.42 from 2.07 in July.


In corporate stories, Banco Macro Bansud said that it partnered with property developer Grupo Farallon to form a real estate firm, which is to be called Vizora. The bank will assume a 12.5% stake in Vizora and will head up its financing operations.


Elsewhere in the region, Chile’s gross domestic product grew 6.5% in the second quarter, strongly aided by record copper prices. The country’s GDP advanced a revised 6.1% in the first quarter and grew by 5.3% in the second quarter of last year.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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