Industry Output Drop in Brazil Fuels Hopes Interests Will Fall

Latin American stocks were mixed to lower, with Brazilian stocks falling amid concerns about the inflationary impact of high oil prices. Meanwhile, Mexican shares were driven lower by profit taking.

Brazil’s benchmark Bovespa Index fell 26.86 points, or 0.09%, while Mexico’s benchmark Bolsa Index dropped 190.31 points, or 1.25%. Argentina’s Merval Index rose 7.55 points, or 0.47%.

Brazilian stocks dipped, as investors weighed continued high oil prices against hopes the central bank will cut interest rates.  Oil prices climbed for the first time in four sessions amid weekly data showing a drop in U.S. crude supplies. High oil prices are seen as one of the biggest threats to inflation in Brazil, which is a net oil importer.

In economic data, the Brazilian Census Bureau said industrial output fell a bigger-than-expected 2.5% in July from June. Analysts had expected a drop of just 0.7%.

On an up note, the data fueled expectations the Brazilian central bank will aggressively cut interest rates at its meeting next Wednesday. Talk of a rate cut was initially prompted by recent data showing inflation fell in August from the previous month.

In corporate news, Brazilian airline Viação Aérea Riograndense SA, or Varig, reported a net loss of 508.7 million reais for the first seven months of 2005, compared to a loss of 542.1 million reais a year ago. Net revenue was 4.1 billion reais, up from 3.9 billion reais.

In research, an investment bank downgraded grocer CBD to "neutral" from "buy," citing its price performance. Meanwhile, another bank raised its 12-month price target on bottler AmBev to US$ 45 from US$ 36, saying the company is likely to meet or exceed profitability targets and improve its dividend outlook.

Also, an investment house upgraded Brazilian utility companies AES-Tietê SA and Tractebel Energia SA to "outperform" from "peer perform."

Elsewhere, Mexican stocks sank, as investors took some profits following three straight sessions of record closing highs. In economic news, a Bank of Mexico official commented that the central bank expects Mexico’s economic growth to slow to 3%, down from prior forecasts looking for growth between 3.25% and 3.75%. The latest move reflects a weaker-than-expected gross domestic product figure in the second quarter.

Meanwhile, the Bank of Mexico said the Consumer Price Index rose 0.12% in August, below expectations for an increase of 0.19%. The result brought annual inflation down sharply to 3.95% from 4.47% at the end of July, and closer to the central bank’s 3% target. The core index rose 0.07%.

Argentine issues gained ground, hitting a fresh record high. Analysts attributed the gains to an absence of negative economic news, according to news services.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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