Market Black to Back in Brazil

Brazilian and Latin American markets advanced, rebounding from sharp losses last week. Brazilian and Mexican shares were further boosted by optimism about third-quarter earnings. Argentina’s market was closed for a national holiday.

Brazil’s benchmark Bovespa Index rallied 304.23 points, or 1.02%, while Mexico’s benchmark Bolsa Index rose 18.82 points, or 0.12%.

Brazilian stocks posted solid gains, helped by an upbeat start to the third-quarter earnings season. Paper and pulp giant Aracruz Papel e Celulose SA was the first Brazilian company to report, posting a third-quarter net profit of 296.8 million reais, down 19% from 368.2 million reais a year earlier, but above market estimates of around 277 million reais. The company’s exports were hurt by the 19% appreciation of the real against the U.S. dollar so far this year.

Petrobras’ transportation unit, Transpetro, announced that shipyards pre- qualified to bid in a tender to build 26 oil-industry support vessels. The investment for the fleet will be US$ 1.28 billion.

In other deal news, mining giant Companhia Vale do Rio Doce (CVRD) denied that it is in negotiations to buy Canadian miner Falconbridge. "CVRD is not negotiating to buy control" of Falconbridge, the company said.

Meanwhile, an influential investment bank upgraded electric power utility CPFL Energia SA to "outperform" from "peer perform," in a valuation call. "Based mainly on last week’s Brazilian market correction and the underperformance of the electricity sector, we are upgrading CPFL as one of the sector’s best growth stories," the bank said.

Elsewhere, Mexican shares posted modest gains, continuing a rebound from last week’s heavy sell-off. Shares were supported by optimism about inflation and third-quarter earnings following Friday’s upbeat earnings from Wal-Mart de Mexico and benign inflation data.

The Bank of Mexico reported on Friday that the Consumer Price Index rose 0.4% in September, slightly below market estimates. It brought annual inflation to its lowest level on record, at 3.51%, which is within half a percentage point of the central bank’s 3% target. The data bolstered expectations of further interest-rate cuts.

On the corporate front, a major investment bank today upgraded Wal-Mart de Mexico to "outperform" from "peer perform," citing the retail giant strong third-quarter results. The company on Friday reported a net profit of 2 billion pesos, up sharply from 1.5 billion pesos a year ago. Sales rose 15% to 38.7 billion pesos.

Outside of Mexico and Brazil, an investment bank started formal coverage of Venezuelan stocks with an "underweight" recommendation, citing a "deteriorating operating environment for private companies."

"We believe that the increased risks faced by the private sector will weigh negatively on locally domiciled companies such as CANTV (VNT), as well as on foreign multinationals that receive a substantial share of revenue from operations in Venezuela." Venezuelan shares were lower on the day.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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