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Interest Rate Cuts Energize Brazilian Market

Latin American markets hit record levels, with the Brazilian index leading the charge, as an interest rate cut enthused investors. Robust GDP data in Argentina and excitement over an IPO in Mexico also helped.

Brazil’s benchmark Bovespa Index leapt 316.25 points, or 1.09%, while Mexico’s benchmark Bolsa Index climbed 207.39 points, or 1.36%. Argentina’s Merval Index added 10.13 points, or 0.63%.

Brazilian shares surged a day after the central bank cut interest rates by 25 basis points to 19.5%, a move that analysts interpreted as the start of a long period of monetary loosening. In economic data, August retail sales advanced 0.31% from the prior month, or 4.50% compared with a year ago.

In M&A news, shares of mining giant CVRD jumped after the company made an offer for Canada’s nickel miner Canico Resources in a bid to diversify its mining portfolio.

Also of note, brewing company Cervejarias Kaiser stated it was unaware of any ongoing negotiations by parent Molson Coors to sell the Kaiser and Bavaria brands.

Elsewhere, Petrobras reported that its average daily domestic oil production fell 2.9% in August due to operating problems at several offshore platforms.

In research, an investment bank raised Net Serviços to "overweight" from "underweight," citing solid fundamentals, growth and sensitivity to macro economic improvement.

Mexican issues, meanwhile, hit another record high, thanks to a hot IPO, and despite flat to lower trading for U.S. counterparts. U.S. economic reports continued to be mixed, although inflation trends there appeared to be contained before Hurricane Katrina hit and sent oil prices to the stratosphere.

In August, the U.S. consumer price index rose 0.5%, while the core index inched up 0.1%. Both figures were flat from the prior month. Analysts had expected the CPI and the core to gain 0.6% and 0.2%, respectively.

Still north of the border, the Philly Fed index tanked to 2.2 in September from 17.5 in August, well below targets for 13.0, and suggesting little or no growth in the manufacturing sector in the Philly region.

Separately, business inventories dropped 0.5% in July, after being unchanged the previous month. A 0.2% increase had been projected. Finally, weekly initial jobless claims soared by 71,000 to 398,000, illustrating Katrina’s impact on the U.S. job market.

In domestic data, Mexico’s second-quarter aggregate demand jumped 4.8% year-on year, with private consumption rising 4.4%.

On the corporate front, infrastructure company Ideal, spun off by financial group Inbursa, and rallied 15% in its first day of trading in Mexico. Shares were priced at 5.80 pesos a unit.

In labor news, a strike of over a month was settled at Mexico’s largest steel plant, the Sicartsa plant, which is operated by Grupo Villacero, as a deal was finally reached with the unions.

Argentine stocks advanced on technical factors, as investors continued to cheer the Merval’s record close yesterday, which was surpassed today. In today’s data, second-quarter gross domestic product swelled 10.1% from a year ago, a 2.4% increase over the first quarter.

In the first quarter, GDP had climbed 8.0% from the year prior. Analysts had predicted a smaller gain of 9.1%. Separately, unemployment dropped to 12.1% in the second quarter from 13% in the first quarter. Also of note, the government’s 2006 budget proposal was submitted to Congress today and confirms a gross domestic product forecast of 4% for that year.

Banks shares rallied today, with Banco Frances getting a lift from speculation that its Spanish majority shareholder, Banco Bilbao Vizcaya Argentaria, will make a tender offer for the remainder of its shares.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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