Finance Minister’s Convincing Testimony Heats Up Brazil’s Market

Latin American stocks firmed on positive sentiment about the latest political developments in Brazil and some bullish analyst comments. Robust earnings reports and some M&A deals also drew attention.

Brazil’s Bovespa Index climbed 263.24 points, or 0.87%. Mexico’s benchmark Bolsa Index rose 117.10 points, or 0.72%, while Argentina’s Merval Index gained 11.74 points, or 0.75%.

Brazilian shares recouped recent losses after Finance Minister Palocci testified before the Senate, denying allegations of corruption and defending its economic policies.

Palocci, largely beloved by the markets, had recently been rumored to be on the verge of resigning. Also on the bright side, industrial employment in São Paulo increased by 0.62% in October from the prior month.

In corporate transactions, steelmaker Gerdau purchased a 24.9% stake in Colombian Siderurgica del Pacifico for US$3.4 million.

Meanwhile, Petrobras’ board approved the purchase of a 51% interest in Uruguayan natural gas distributor Gaseba from Gaz de France International. Terms of the deal were not disclosed.

Also, Petrobras reported a discovery of "oil of excellent quality" in the state of Bahia. Separately, the unit of Petrobras and Japan’s Teikoku Oil won a joint bid for an offshore exploration block in Venezuela.

In research, a major investment bank raised mobile phone operator TIM Participações to "overweight" from "equal weight," saying it was outperforming its rivals and finding its valuation attractive.

In earnings, retail bank Nossa Caixa reported a third-quarter net profit of 172.2 million reais, up from last year’s 58.9 million reais.

Also, real estate developer Cyrela Brazil Realty posted earlier in the week net profits of 105.5 million reais in the first nine months of 2005, up 67.7% from the same period a year ago.

Mexican stocks firmed, recovering from some profit-taking, while U.S. counterparts had a mixed performance. In the U.S., the consumer price index rose in October to 0.2% from 1.2% in September and surpassed estimates to remain unchanged from the previous month. However, the core CPI was 0.2%, up from last month’s 0.1%, and in line with expectations.

In domestic data, late in the day, third-quarter gross domestic product grew 3.3%, up from 3.1% in the second period, and above forecasts of 3.2%. A sharp gain in agricultural output was behind the expansion, according to the report.

Providing support domestically, an influential investment bank reiterated its "overweight" rating on large cement firms, while adding that Cemex was its top pick in the sector. The bank also raised its price target on the firm.

Elsewhere, Argentine shares edged up, in line with regional counterparts, although stocks are largely range-bound, due to little corporate and other developments, now that the third-quarter earnings season has mostly wrapped up.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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