In Brazil See-Saw Is Up While Lula Ponders Whether to Run Again

Latin American markets strongly recovered from weakness yesterday, on a Brazilian rally. Political tensions in the country eased today, and investors concentrated on indications from the central bank that a rate cut may be on the horizon.

Argentina also moved solidly higher, aided by the banking sector. Mexico, meanwhile, was little changed on the day.


Brazil’s benchmark Bovespa Index rallied 689.25 points, or 2.58%, while Mexico’s benchmark Bolsa Index edged up 1.61 points, or 0.01%. Argentina’s Merval Index surged 37.09 points, or 2.41%.


Brazilian shares rebounded, as political concerns eased for the moment. A former aide to Finance Minister Antonio Palocci testified before a congressional investigative committee that he does not have material proof that Palocci accepted kickbacks from contractors in the 1990s while serving as mayor for Ribeirão Preto.


Separately, President Luiz Inácio Lula da Silva said that he is undecided about running for reelection next year. Lula also pledged to use all means possible to fight corruption.


On the economic front, the central bank indicated in its minutes from its interest rate meeting earlier this month that it sees a downward trend in inflation. The bank also omitted language suggesting the need for long-term monetary tightening. Analysts are hoping for an interest rate cut next month.


Meanwhile, the Brazilian Census Bureau, or IBGE, said that the official jobless rate was unchanged at 9.4% in July, compared to June. Separately, the central bank posted a 5.1 billion reais surplus in July, bringing the accumulated year-to-date result to 45 billion reais, or 4.1% of gross domestic product.


Turning to corporate reports, Petrobras’ chief executive said that he expects oil prices to continue their ascent over the next two to three years. Petrobras also pointed to the U.S.’ limited oil refining capabilities and inefficient energy use for high prices.


Elsewhere, CVRD’s board of directors approved an automatic dividend reinvestment plan for its shareholders, which will be accessible from the date of payment of the second tranche of the minimum dividend for 2005, currently scheduled for October 31.


Mexican stocks were nearly unchanged on the day, alongside tepid U.S. market strength. The National Statistics Institute, or Inegi, said that economic activity in Mexico rose 1% in June, compared to the year-earlier result, but declined 1.19% versus May’s result.


In research reports, a major investment bank raised its price target for America Movil American Depositary Receipts to US$ 33 from US$ 28 due to strong subscriber growth and potentially stronger profit margins.


Last night, Mexico’s transport and communications ministry awarded a major rail project to a consortium led by Spain’s CAF over Mexico’s ICA consortium.


Airline holding firm Contra announced last night that it has approved 18 out of 21 expressions of interest to bid for its two airlines, AeroMexico and Mexicana.


In legal news, U.S.-based Univision Communications filed a countersuit against its programming partner Grupo Televisa, which is based in Mexico. The suit follows an initial claim filed by Televisa alleging that the U.S. broadcaster breached their program license agreement through withholding royalties.


Argentina continued to power higher. Shares of Banco Macro Bansud surged, after the firm said it was considering a public offering of 75 million Class B shares.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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