Wall Street and Low Inflation Give Brazil a Boost

Latin American stocks were mostly higher, with Brazilian and Mexican stocks posting robust gains, in line with a rally on Wall Street. Brazilian shares were further boosted by tame inflation data.

Brazil’s benchmark Bovespa Index rose 332.92 points, or 1.17%, while Mexico’s benchmark Bolsa Index climbed 173.31 points, or 1.17%. Argentina’s Merval Index fell 2.88 points, or 0.18%.


Brazilian stocks rose on encouraging inflation news. The IPCA Broad Consumer Inflation Index slowed to 0.17% in August from 0.25% in July, meeting the average analyst estimate.


The declining inflation rate reinforced expectations for a cut in the Selic base interest rate when the Brazilian Central Bank meets next Tuesday and Wednesday.


The Selic rate is currently 19.75%. Many financial market analysts are now predicting a cut of as many as 50 basis points in the rate next week.


In other economic news, Brazil’s Applied Economics Research Institute raised its forecast for 2005 gross domestic product growth to 3.5% from its previous estimate of 2.8%. The institute also lowered its forecast for 2005 inflation to 5.3% from 6.3%.


Lending additional support to equities, the government reopened its 2025 bond in a move that could bring as much as $1 billion in additional reserves into the country, according to news services.


Among individual shares, state oil company Petrobras climbed following reports the company made a major find of light crude oil off the southern coast of Brazil.


In other corporate news, Braskem told Dow Jones Newswires that it will proceed with a multimillion dollar project in Bolivia. Separately, airline Gol warned that its third-quarter earnings could be negatively impacted from surging crude oil prices.


Elsewhere, Mexican shares posted robust gains, in line with their U.S. counterparts. North of the Rio Grande, stocks got a lift from declining oil prices and a rise in the ISM services index to 65.0 from 60.5 in July, the highest reading since April 2004.


Closer to home, President Vicente Fox submitted a budget proposal that is based on 2006 GDP growth of 3.6%, up from its outlook for 3.5% growth in 2005. Also of note, in the budget plan, Petroleos Mexicanos intends to invest 129.6 billion pesos in its operations next year.


On the corporate front, cement titan Cemex led the market higher, as investors continue to bet that the firm will play a major role in helping to rebuild the Gulf region in Hurricane Katrina’s aftermath.


Separately, workers at Grupo Mexico’s Cananea copper complex in northwestern Mexico voted in favor of a proposed contract revision. Terms of the deal were not immediately available.


Meanwhile, Argentine shares ended marginally lower on mild profit-taking, although healthy volume indicated local investors are putting fresh funds in the market, according to news services.


On the economic front, Economy Minister Roberto Lavagna reiterated the government’s objectives of a competitive exchange rate and a fiscal surplus.


In company news, the head of the Argentine unit of Brazil’s Petrobras stated that the firm has no plans to hike gas or diesel pump prices, hinting that a recent call for higher prices by retailers is not being heeded due to government resistance.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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