News of Lula’s Waning Popularity Depresses Brazil Stocks

Latin American markets drifted lower for the most part, due to weakness in the U.S., political concerns in Brazil and a disappointing outlook from Mexico’s Cemex.

Brazil’s benchmark Bovespa Index fell 247.28 points, or 0.85%, while Mexico’s benchmark Bolsa Index dropped 102.88 points, or 0.68%. Argentina’s Merval Index eased 1.43 points, or 0.09%.


Brazilian shares declined, following a poll showing waning popularity for the government, and amid jitters ahead of tomorrow’s central bank meeting. Analysts widely expect an interest rate cut, and any decision of the bank to keep rates steady would be considered bearish.


On the political front, a poll showed that support for President Lula fell to 50% from 59.9% in July. In addition, the Lower House ethics committee will open a probe tomorrow into corruption allegations against Lower House Speaker Severino Cavalcanti, reported news services.


In other data, the consumer confidence index for São Paulo dropped 16.6 points to 109.5 in September, the first time since April 2004 that the index was below 110.


Mexican issues, meanwhile, retreated as well, due to soft industrial production data released yesterday, and in line with U.S. counterparts.


Fears of inflation and a disappointing earnings report from consumer electronics retailer Best Buy, which generated concerns that the high oil prices may be curbing consumer discretionary spending, pressured stocks north of the border.


In U.S. economic data, the producer price index rose 0.6% in August, versus 1.0% the prior month, and compared to expectations for an increase of 0.8%.


Analysts shrugged off the report, as it predates the surges in oil prices caused by Hurricane Katrina. In other reports, the trade gap shrunk to US$ 57.94 billion in July from US$ 59.49 billion in June, versus predictions for an increase to US$ 60 billion.


In company news, Cemex released preliminary third-quarter results late yesterday. The firm expects earnings before interest, taxes, depreciation and amortization close to US$ 1 billion in the period, up about 50% from the prior year. Sales are seen doubling to US$ 4.4 billion, largely due to the acquisition of U.K.-based RMC Group.


The stock fell, as analysts’ reactions to the news was mixed, with an investment bank noting soft demand in Mexico, Spain and the U.K. Separately, Cemex also announced a non-dilutive secondary share offering.


In labor news, Grupo Mexico’s Asarco unit reported late yesterday that striking union workers at its copper operations in Arizona and Texas had rejected its latest labor contract offer. In addition, Southern Peru Copper Corp., in which Grupo Medico has a stake, warned of weak sales in 2006 due to falling mined metal prices.


Argentine stocks traded sideways for most of the session, in light volume, amid little developments. Of note, in the corporate front, Telecom Argentina filed for creditor protection in the U.S. to protect its assets from creditors who haven’t signed off on the company’s debt restructuring.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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