After Record High, Brazilian Stocks Sink

Latin American markets dropped, with Brazilian stocks posting some of the region’s biggest losses, as investors cashed in some recent gains on optimism about the economy and interest rates. Mexican shares were also lower on profit taking as well as U.S. market weakness amid worries about higher U.S. interest rates.

Brazil’s benchmark Bovespa Index dropped 572.30 points, or 1.80%, while Mexico’s benchmark Bolsa Index fell 117.61 points, or 0.73%. Argentina’s Merval Index tumbled 44.08 points, or 2.55%.

Brazilian stocks sank, as investors took profits following a recent run-up on solid economic fundamentals. Brazil’s economy is expected to grow about 3.5% in 2005 amid easing inflation and lower interest rates.

In corporate news, a local newspaper reported that Petrobras plans to refine oil and produce lubricants in Uruguay. Petrobras plans to use Uruguay’s idle refining capacity, which is estimated at 10,000 barrels per day, the newspaper said.

Shares of budget airline Gol were active after the company released preliminary passenger-traffic statistics for September, saying system-wide passenger traffic jumped 78% from August, while its load factor was 75.5%.

Meanwhile, online retailer Submarino SA reported preliminary third-quarter sales of 156.5 million reais, up 71% from a year earlier. Total order volume rose 49% to 673,000 units. Results were helped by strong sales of electronic products. The firm added that it is continuing with its offline ad campaign.

Elsewhere, Mexican shares dipped, as investors continued to lock in some profits after the market hit a series of record closing highs last week.

Shares were further undermined by weakness in the U.S. market following hawkish comments from a key U.S. Federal Reserve official. Dallas Fed President Robert Fisher said the central bank must continue raising interest rates as inflation is close to the top of its tolerance zone.

He noted that the jump in energy prices and the massive government spending on rebuilding following Hurricane Katrina are adding new demand pressures that could fuel inflation.

Investors fear that higher interest rates would slow down the U.S. economy, which absorbs the vast majority of Mexico’s exports. In U.S. economic data released today, factory orders in August rose a larger-than-expected 2.5%.

Investors were also keeping an eye on Hurricane Stan, which hit Mexico’s Gulf coast today before being downgraded to a tropical storm. The hurricane forced the closure of the busy Veracruz port and the evacuation of several oil platforms.

Argentine issues retreated as investors took some profits off the table after the market hit new record highs in five of the last seven trading sessions. Some analysts expect the market to encounter some volatility later in the month, as congressional elections get under way.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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