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IMF Applauds While Banks Lament Brazil’s Economic Performance

Latin American stocks were mostly higher, with Brazilian stocks posting the biggest gains on hopes for steeper interest-rate cuts. Mexican shares also gained on signs of economic strength north of the border. However, Argentine issues dipped as investors digested the new economy minister first policy announcements.

Brazil’s Bovespa Index jumped 700.42 points, or 2.19%. Mexico’s benchmark Bolsa Index gained 302.87 points, or 1.80%, while Argentina’s Merval Index dropped 34.81 points, or 2.24%.

Brazilian stocks surged amid hopes the central bank will increase the pace of future interest-rate cuts following yesterday’s data showing a bigger-than-expected decline in third-quarter economic growth. The slowdown was attributed largely to Brazil’s sky-high interest rates.

In mid-November the central bank reduced rates by 50 basis points, as part of a cycle of gradual easing begun in September. The bank said in minutes released today from the November meeting that a continued gradual easing of monetary policy will not compromise efforts to contain inflation.

Meanwhile, two major investment banks cut their full-year forecasts for Brazil’s economic growth to 2.5% from 3.3% and to 2.4% from 3%.

"The results were dismaying…The third-quarter data match results only seen before in crisis periods," one of the banks said, adding,

"The GDP release is more than a warning that Brazil is risking seeing this nascent rebound go to sleep."

The investment bank suggested that Brazil’s central bank should move more aggressively to lower interest rates.

However, the International Monetary Fund said it expects Brazil to continue its strong economic performance through the end of the year despite the disappointing growth figures.

"The progress the Brazilian economy has made is impressive. By keeping to its commitment to an ongoing program of structural reforms, President Lula’s administration has laid the basis for a sustained recovery with low inflation," said IMF First Deputy Managing Director Anne Krueger.

In corporate news, Brazil’s Economic Development Bank said that it will lend state-run oil firm Petrobras US$ 721 million in bridge loans for the construction of two gas pipelines.

Meanwhile, a major investment bank initiated coverage on budget airline Gol with an "overweight" rating and a 12-month price target of US$ 60.

The broker stated, "Gol is a Southwest Airlines copycat operating Boeing 737’s in Brazil, a marketplace where the only meaningful competition is not focused on low-cost low-fare service."

Elsewhere, Mexican shares climbed to a new record closing high, helped by strength in the U.S. market, amid mostly positive U.S. economic data. Consumer prices rose 0.1% in October after soaring 0.9% in September, helping to ease inflation concerns.

Also, personal income and spending both rose in October, while jobless claims fell sharply in the latest week, and the ISM manufacturing index suggested that the economy continued to expand in November, but at a slower pace than in October.

Among individual shares, Cintra continued yesterday’s decline after the company said late Tuesday it failed to sell one of two airlines.

Argentine issues slumped, as investors digested new Economy Minister Felisa Miceli’s announcement of fresh price agreements aimed at tackling inflation.

Miceli said prices on basic dairy products would lowered to November 1 levels and kept there until the end of January. In addition, she said the country’s supermarkets have agreed to a 15% decrease in basic food, clothing and personal products for two months.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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