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GDP Good News Raises Hopes and Stocks in Brazil

Latin American markets ended mostly higher on bullish GDP data in Brazil and discount-buying in Mexico, while crude oil prices eased and U.S. economic data mostly disappointed.

Brazil’s benchmark Bovespa Index leapt 441.09 points, or 1.60%, while Mexico’s benchmark Bolsa Index climbed 234.99 points, or 1.68%. Argentina’s Merval Index shed 7.77 points, or 0.49%.

Brazilian shares rose strongly, surpassing the 28,000 resistance level for the first time since March, thanks to robust GDP data. For the second quarter, GDP advanced 3.9%, above targets of 3.3%. First-quarter GDP was slightly revised downward to 2.8% from an initial 2.9%.

The strong growth was attributed to robust demand for commodities and higher corporate investments. The report further boosted hopes that the central bank will soon cut interest rates. However, on a down note, Sao Paulo’s industrial activity index, or Fiesp, fell 2.7% in July from June.

On the corporate front, utility firm Companhia Energética de Minas Gerais SA reduced its 2005 investment forecasts to 1.62 billion reais from 2.1 billion reais, due in part to the reduction of federal government electric power subsidies.

Also, Banco Rural SA is planning to close some branches and lay off staff due to an outflow of deposits. The bank’s loans to the governing Workers’ Party are currently under investigation by Congress.

Separately, low-cost airline Gol Linhas Aéreas Inteligentes reported that its load factors were strong in the third quarter and that yields were recovering.

However, TAM SA, the biggest carrier in the domestic market, announced price cuts of up to 85% on select routes ahead of Brazil’s Independence Day holiday in early September.

Mexican issues, meanwhile, rebounded from three negative sessions, as investors picked up bargains, while still assessing the impact of Hurricane Katrina. Petroleos Mexicanos reported that a platform it had dry-docked for repairs in Mobile, Alabama, was swept up by the hurricane.

Homebuilders continued to benefit from an upbeat research note on sector player Homex yesterday and positive sentiment about domestic housing trends.

Adding strength, Cemex lured some buyers on news that the U.S. President made a preliminary determination to reduce the penalty tariffs imposed on the company.

Investors also digested mixed economic data from the U.S. Second-quarter GDP in that country was revised down to 3.3% growth from an initial 3.4%, versus expectations for an unchanged reading.

Also, the Chicago PMI tanked to 49.2 in August from 63.5 the prior month, well below the anticipated decline to 61.3. A reading below 50 indicates contraction of manufacturing activity.

Argentine stocks ended flat to lower on mild profit-taking, amid little corporate developments. On the economic front, the July trade surplus grew to US$ 1.22 billion, versus US$ 1.06 billion a year earlier, the first month since January that the surplus posted a year-on-year gain. It was also the largest monthly result so far this year.

In other regional economic news, Chile’s central bank raised its 2005 GDP forecast to a range of 6.0% to 6.5% from an initial 5.3% to 6.3%, due in part to strong domestic demand.

Thomson Financial Corporate Group – www.thomsonfinancial.com


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