Latin American stocks sank deep into the red, as investors continued to take profits, while fretting over the prospect of further U.S. interest rate hikes. Higher U.S. interest rates worry investors because they make emerging market shares relatively less attractive.
Brazil’s benchmark Bovespa Index plunged 936.12 points, or 3.10%, while Mexico’s benchmark Bolsa Index tumbled 472.75 points, or 3.01%. Argentina’s Merval Index dropped 26.35 points, or 1.60%.
Brazilian stocks extended yesterday’s heavy sell-off, as investors continued to cash in some of the market’s recent stellar gains. The recent run-up has been supported by encouraging economic data signaling tame inflation and economic expansion. Expectations for continued interest-rate cuts have also boosted shares. In September, the central bank lowered rates to 19.5%.
In a further sign the economy is on solid footing, the Brazilian Census Bureau, or IBGE, said Brazil’s industrial production rose 1.1% in August from July, after falling a revised 1.9% in July from June. The IBGE previously had reported a 2.5% fall in July. However, the country’s 12-month rolling industrial production growth declined to 5.1% from 5.9% in July.
Among other indicators, Brazilian motor vehicle production fell 5.6% in September from August to 205,651 units, owing largely to fewer business days in September than in August. However, September’s output was up 1.3% from September 2004.
In corporate news, Brazil’s Justice Ministry Antitrust Division yesterday upheld its ruling on an antitrust case involving miner CVRD and steel maker CSN.
The ruling concerns a dispute between both firms over control of a key railroad and CVRD’s preferential right to purchase iron ore from a mine owned by CSN. The Antitrust Division denied an argument by CVRD that its final decision contained omissions, contradictions and obscurities.
Separately, a brokerage raised its price target on CVRD to US$ 42 from US$ 36. The brokerage also downgraded CVRD to "hold" from "buy."
In other developments, the Brazilian Bank Workers Union began a strike in 20 of the nation’s 27 states. Unions are demanding a wage increase of 11.77%, while the banks have offered a 4% increase plus a one-time bonus for most workers of 1,000 reais (US$ 436).
Elsewhere, Mexican shares tumbled on continued profit taking and weakness in the U.S. market on concerns about higher U.S. inflation and interest rates.
Among individual shares, retailer giant Wal-Mart de Mexico fell ahead of its third-quarter earnings report due out after the market closes on Friday.
Also, shares of Asur were active after the airport operator announced that total passenger traffic for September increased 0.3% from a year ago.
Meanwhile, Argentine issues sank for a third straight session after hitting a fresh record high on Monday. Shares have been pressured recently by profit taking as well as domestic inflation concerns and uncertainty over the outcome of upcoming congressional elections. Yesterday, the national statistics agency, INDEC, said consumer prices rose 1.2% in September. That puts year-on-year inflation at 10.3%, well above the central bank’s target.
Thomson Financial Corporate Group – www.thomsonfinancial.com