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Optimism Tide Raises Economy Ship in Brazil

Brazilian and Latin American markets advanced, due to strength on Wall Street, lower oil prices and pleasing budget surplus data in Brazil. A duo of research notes also drew attention in Mexico.

Brazil’s Bovespa Index gained 875.33 points, or 2.99%. Mexico’s benchmark Bolsa Index rose 180.05 points, or 1.16%, while Argentina’s Merval Index added 6.23 points, or 0.39%.

Brazilian stocks gained ground on optimism about the economy. The September primary budget surplus totaled 7.57 billion reais, down from August’s 10.19 billion reais, but equaling 6.1% of gross domestic product. The government’s year-end target for the surplus is 4.25% of GDP.

Also of note, on the economic front, a government survey found that analysts are slightly raising their forecasts for short-term inflation, now seen at 0.56% in October, up from an initial 0.53%.

Overall, investors shrugged off the latest developments in the ongoing political scandal. Over the weekend, news services reported allegations that the ruling party and President Lula received campaign contributions from the Cuban government. Contributions from foreigners are forbidden by Brazilian law.

In other global-related news, the U.S. eliminated an antidumping tariff levied against hot-rolled coils produced by Companhia Siderúrgica de Tubarão.

Meanwhile, Mexican shares rose, in line with the U.S., which saw a flurry of M&A deal news and mostly pleasing economic data. U.S. personal income rose 1.7% in September, up from a falling 0.9% in August, and beating the consensus estimate of 0.4%.

Consumer spending also strengthened, edging forward 0.5% in September from -0.5% in August. Spending missed its target estimate, however, of 0.6%.

Still in the U.S., the Purchasing Management Association of Chicago stated its index of area business activity rose to 62.9 in October from 60.5 in September. Analysts had predicted a reading of 58.9.

Closer to home, Bank of Mexico reduced its 2005 growth outlook, citing the impact of recent hurricanes. GDP is now predicted to rise between 2.75% to 3.25% this year, a half percentage point lower than in previous projections. For next year, the bank sees growth of 3% to 3.5%.

In research news, a major investment bank lowered its rating on Coca-Cola Femsa to "underweight" from "neutral," on reports that Coke will increase the price Femsa pays for concentrate.

"Coke likely completed a global review of this profit pie split and identified Mexico as a market with one of the lowest concentrate prices and the highest percentages of the profit pie going to the bottlers," concluded the bank.

On the bright side, another key investment bank raised Grupo Bimbo to "buy" from "neutral," citing a robust third-quarter earnings report.

In quarterly results, state oil monopoly Pemex sustained a third-quarter loss of 10 billion pesos after taxes. On a pre-tax basis, the firm reported profits of 145 billion pesos, up from last year’s 133 billion pesos. The firm paid 155 billion in taxes and royalties. Sales jumped to 241 billion pesos from 204 billion pesos a year earlier.

Elsewhere, Argentine stocks climbed, but ended off its earlier highs. Bonds rallied, after the Economy Minister pledged that the budgetary surplus will be fed into "an untouchable fund" to be used to balance disruptive cycles, among other purposes, according to news services.

Also, investors were taking in comments by the Minister late last Friday that as Argentina and the IMF are to resume their negotiations, he believes that the lender’s current terms are unacceptable. In domestic data, the September trade surplus grew to US$ 1.011 billion from US$ 970 million last year.

In company news, flat steelmaker Siderar reported a third-quarter net profit of 173.8 million pesos, down from last year’s 288.3 million pesos, despite higher sales.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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