Political Uncertainty Keeps Brazil from Getting Better Credit Rating

Brazilian currencyLatin American markets were mixed, with Brazilian stocks dropping, as data showing a rise in consumer prices stoked worries about inflation. Meanwhile, Mexican shares were mixed to higher, in line with the U.S. market.

Brazil’s benchmark Bovespa Index fell 266.26 points, or 0.86%, while Mexico’s benchmark Bolsa Index rose 36.28 points, or 0.23%. Argentina’s Merval Index added 5.11 points, or 0.31%.

Brazilian stocks fell amid inflation concerns after São Paulo’s Fipe institute said its consumer price index rose 0.26% in the four weeks ended September 23, up from a gain of 0.03% in the four weeks ended September 15, due to higher transportation costs. Analysts had expected a rise of between 0.7% and 0.23%.

Meanwhile, Brazil’s National Confederation of Industries (CNI) said industry forecasts for Brazil’s economic growth in 2005 rose to 3.5% in September from the 3.2% seen in June.

CNI also predicted that Brazil’s IPCA consumer price inflation rate will end the year at 5.1%, while the Selic interest rate will finish the year at an average 19.1%.

"The country’s economic fundamentals are pointing toward much lower interest rates," said CNI chief economist Flávio Castelo-Branco.

Among individual shares, miner CVRD proposed a lower-than-expected total dividend payout, possibly due to its bid for Canadian miner Canico Resources.

In other developments, Fitch Ratings said uncertainty over the 2006 presidential election and the government’s inability to reduce the ratio of debt to gross domestic product are hindering a possible credit rating upgrade for Brazil.

Mexican shares edged higher, hitting a record closing high for a second-straight session. Lending support, investors were heartened by benign comments from U.S. Federal Reserve Chairman Alan Greenspan.

He said key sectors of business and finance have made the U.S. economy flexible enough to survive a series of shocks including 9/11. Investors were relieved the Fed chief did not express concerns about inflationary pressure.

However, gains were limited by gloomy U.S. consumer confidence data. The consumer confidence index fell to 86.6 in September from 105.5 in August, marking the lowest level since October, 2003. The data suggested consumers are worried about the impact of Hurricane Katrina and high gas prices. The U.S. is Mexico’s biggest trading partner and investment source.

Among individual gainers, Cementos Chihuahua rose after saying late yesterday that it has paid $58.2 million for a 46.57% stake in Sociedad Boliviana de Cemento SA.  Cementos Chihuahua said the acquisition will create new growth opportunities for the company, due to strong demand for building materials.

Elsewhere, Argentine issues climbed, after a joint presentation by South American countries to the IMF over the weekend signaled that Argentina is seeking to sign a new financial program with the lender. The government is expected to restart talks with the IMF following congressional elections in October.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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