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Another Down Day for Brazilian Stocks

Latin American markets collectively receded, following a downturn in U.S. shares. U.S. Federal Reserve Chairman Alan Greenspan described the U.S.’ housing boom as an economic imbalance that could derail the domestic economy.

Also, disappointing U.S. consumer sentiment data added to the negative sentiment. Brazil and Mexico posted notable declines, while Argentina’s demise was more muted.


Brazil’s benchmark Bovespa Index tumbled 307.02 points, or 1.12%, while Mexico’s benchmark Bolsa Index receded 159.77 points, or 1.09%. Argentina’s Merval Index declined 8.32 points, or 0.53%.


Brazilian shares took another strong swing, this time into the red, in what has been a roller coaster week for the key Bovespa Index.


Although crude oil prices pulled back late in the session, prices remain above US$ 66 a barrel. High prices are a major concern for local investors, as Brazil is a net importer of crude oil.


In economic news, the central bank said that the primary budget surplus fell to 8.8 billion reais in July from 9.62 billion reais in June. So far this year, the budget surplus is 68.7 billion reais, or 6.27% of gross domestic product.


Separately, São Paulo’s Fipe research institute said the consumer price index declined 0.04% in the four weeks ended August 22, compared to a 0.07% uptick in the four weeks ended August 15.


Turning to corporate reports, the Wall Street Journal reported that iron-ore producer CVRD was considering an acquisition of French metals and mining group Eramet. Eramet denied it was in talks with Companhia Vale do Rio Doce, while the Brazilian company said the report was groundless.


In other deal news, Usiminas announced last night that it will own about 16% of Ternium, which is a new steel venture that was created by Argentina’s Techint. Usiminas will provide its 5.3% stake in Argentina’s Siderar and its 16.6% stake in Venezuela’s Consorcio Amazonia. The firm will also pay US$ 100 million.


Meanwhile, a major investment bank upgraded aircraft manufacturer Embraer to “buy” from “neutral” and raised its 12-month price target to US$ 43 from US$ 34.


The bank commented, “The upgrade reflects our positive outlook for global civil aerospace, as well as significant free cash flow generation momentum and lower backlog risk.”


Mexican stocks plunged on the day. In the headlines, the Bank of Mexico left its monetary policy, or “corto,” unchanged at 79 million pesos, but said that it would allow interest rates to decline as much as 25 basis points.


Elsewhere, America Movil intends to invest US$ 625 million in its Colombian unit Comcel in part to strengthen its infrastructure. Separately, Telmex said that it plans to invest US$ 350 million in Colombia, as the firm is combining its assets with Colombia Telecomunicaciones. The firm will also assume liabilities of US$ 3.3 billion from Telecomunicaciones’ liquidated predecessor.


A large investment house downgraded bread and baked goods firm Grupo Bimbo to “neutral” from “buy,” due to the recent strength of the firm’s stock price.


Argentina turned lower, following two-straight positive sessions. The national statistics office said that industrial production increased 6.7% in July year-over-year, and rose 0.1% from June.


On the research front, an investment bank started coverage of Cresud, an agriculture and real estate holding firm, with a “buy” rating and a 12-month price target of US$ 14.20.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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