Weak U.S. Brings Investors to Brazil

Latin American markets had a strong session, as weakness in U.S. shares lured investors to the southern hemisphere. Hopes for lower interest rates also helped lift Brazilian equities.

Brazil’s benchmark Bovespa Index jumped 176.69 points, or 0.61%, while Mexico’s benchmark Bolsa Index climbed 134.10 points, or 0.89%. Argentina’s Merval Index added 28.79 points, or 1.81%.


Brazilian shares firmed, ahead of an interest rate decision from the central bank due after the close of trading. Analysts widely expect the bank to cut rates by at least 25 basis points.


On the corporate front, Petrobras continued to benefit from reports yesterday it has discovered more oil in a block off the coast of Espí­rito Santo state.


In legal news, steelmaker Gerdau won an injunction to halt proceedings in an antitrust hearing before a Justice Ministry antitrust body about charges of price fixing against the company and two other steelmakers.


Still in industrials, Embraer sailed higher on news yesterday it delivered the first of its 108-seat passenger aircraft to U.S. airline JetBlue.


In financials, a local court suspended a contract between the São Paulo city government and Banco Itaú, ordering the city to keep its previous contract with Banespa for the time being. Last week, Itaú had been reported as the bid winner to supply banking services to the city’s agencies and municipal employees.


Mexican issues, meanwhile, gained ground as well, rebounding from recent losses, despite a weak performance from U.S. counterparts. In U.S. data, August industrial production inched up 0.1%, as it did the prior month, versus expectations for a 0.3% increase.


Capacity use was also flat, at 79.8%, in line with targets. Separately, retail sales dropped 2.1% in August, after climbing 1.8% in July, below predictions for a decline of 1.3%. Ex-autos, sales rose 1.0%, versus 0.5% in July, and compared with estimates for a 0.5% gain. These mixed reports weighed on sentiment north of the border.


Argentine stocks advanced in sympathy. Of note, on the economic front, news services reported that the 2006 budget that will be sent to Congress tomorrow foresees a primary fiscal surplus of 3.3% of GDP.


The news reports note a GDP growth rate of 4% is assumed, which is down from recent government forecasts, although an official at the Economy Ministry also said a preliminary draft had taken a more aggressive assumption of 5% GDP growth.


In company news, Aguas Argentinas will not be nationalized, and the government is seeking a new private investor for the company, reported the news media.


Elsewhere, Chile’s Finance Ministry expects Chile’s GDP to remain strong, reaching 6.2% from the prior year, but to edge lower in 2006 to 5.5%.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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