Brazil to Grow a Mere 2.3% in 2005, Says IPEA

Latin American markets gained ground, with Brazilian stocks posting the biggest gains on hopes for further Brazilian interest-rate cuts. Meanwhile, Mexican shares rose on encouraging U.S. productivity data.

Brazil’s benchmark Bovespa Index surged 522.25 points, or 1.60%, while Mexico’s benchmark Bolsa Index climbed 153.37 points, or 0.89%. Argentina’s Merval Index fell 1.72 points, or 0.11%.

Brazilian stocks rallied amid expectations that Brazil’s central bank will continue cutting interest rates at its meeting next Wednesday. A number of analysts expect the bank to reduce rates by 50 basis points following recent data showing the economy contracted 1.2% in the third quarter from the second quarter.

Reflecting the recent economic slump, Brazil’s IPEA (Instituto de Pesquisa Econômicas Aplicada) Applied Economics Research Institute today lowered its forecast for 2005 gross domestic product growth to 2.3% from a previous 3.5%.

"The frustrating GDP figures for the third quarter and the strengthening of the Brazilian real over the last few months were key," the institute said in a report.

The institute also cut its growth estimate for 2006 to 3.4% from 4%, and raised its forecast for 2005 inflation to 5.7% from 5.3%. On an up note, the institute predicted that the economy will grow 1.4% in the fourth quarter from the third quarter.

In other economic news, the National Confederation of Industries reported that Brazil’s utilization of installed industrial capacity declined to 81.1% in October from 83.9% a year earlier.

However, use of capacity rose slightly from September’s reading of 80.7%. Meanwhile, sales of industrial products fell in October by 2.5% from a year ago and by 0.9% from the previous month.

On the corporate front, the Brazilian National Development Bank said it will loan brewing giant Ambev US$ 146 million to finance expansion of production and distribution facilities.

Meanwhile, mining giant CVRD’s Chief Executive Officer, Roger Agnelli, said yesterday that the company expects prices for commodity metals to stabilize at their current, and historically high, levels because of continued strong global demand.

Late yesterday, Brazil’s Securities and Exchange Commission asked budget air carrier Gol to restate its 2004 earnings results because of accounting errors.

In research, a major investment bank upgraded mobile phone operator Telesp Celular to "neutral" from "underweight," citing a shift in the company’s focus towards stronger cash flow generation.

Meanwhile, another investment bank started coverage of waterworks company Companhia de Saneamento Básico do Estado de Sao Paulo, or Sabesp,  with a "buy" rating.   "In our opinion, Sabesp’s stock is undervalued," the bank said.

Elsewhere, Mexican shares followed the U.S. market higher amid upbeat U.S. economic data. U.S. business productivity rose a bigger-than-expected 4.7% in the third quarter, the fastest rate in more than two years. Meanwhile, unit labor costs fell at a 1% annual pace in the quarter, revised down from a 0.5% decrease.

In local corporate news, airport operator Asur said November passenger traffic fell 50.3% in November from a year earlier, due to Hurricane Wilma, which hit the Cancun airport in late October.

Argentine issues slumped, snapping a two-day rally, after Economy Minister Felisa Miceli announced that the government plans to introduce more price accords as part of its fight against inflation.

Miceli said the government will put in place an economy-wide program of price monitoring and agreements. The plan will first target the food and beverage industries, which carry the greatest weight on the consumer price index.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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