Brazil Reassured That Finance Minister Won’t Fall

Latin American markets sank, with Brazilian and Mexican shares falling on profit taking following recent strong gains. Meanwhile, Argentine shares fell amid continued worries about local inflation.

Brazil’s benchmark Bovespa Index dropped 466.33 points, or 1.40%, while Mexico’s benchmark Bolsa Index fell 180.24 points, or 1.03%. Argentina’s Merval Index tumbled 33.14 points, or 2.13%.

Brazilian stocks dropped, as investors took profits, while digesting lackluster industrial production data. The Brazilian Census Bureau reported today that industrial output rose 0.1% in October from September and climbed 0.4% from a year earlier, as sky-high interest rates continued to restrain economic activity.

In other developments, Brazilian President Luiz Inácio Lula da Silva defended the central bank’s current policy of gradually lowering interest rates.

"The Selic (base interest) rate during my administration has been, on average, lower than in many years. The Selic rate will ease, but it will ease at a pace that does not cause inflation," he said.

A number of business and political leaders have called on the central bank to speed up the pace of monetary easing. While the bank has been steadily easing its policy since September, rates still stand at a lofty 18.5%.

In the latest reassurance that Finance Minister Antonio Palocci does not plan to resign, Presidential Chief-of-Staff Dilma Rousseff backed Palocci’ s austere economic policies and said that he would not be leaving the government.

"There is not the slightest chance Minister Palocci will leave the government," Rousseff said, according to local news reports.

On the corporate front, Petrobras confirmed it is in discussions to buy gasoline stations in Colombia, Uruguay and Paraguay. "It’s part of our strategy to widen out distributing activity taking advantage of synergies in South America," said Petrobras’ International Director Nestor Cervero.

Meanwhile, investor Fernando Chico said that the low-cost airline that he’s financing for the Mexican market in partnership with Brazil’s Gol will need approximately US$ 40 million in financing before getting off the ground.

In research, a major investment bank initiated coverage of Brazilian bank Nossa Caixa with an "equal weight" rating. "A good solid story, but we would wait for better entry point," the investment bank said.

Meanwhile, another investment bank started Nossa Caixa at "Buy 2."  "The bank is an attractive vehicle for gaining exposure to the banking sector, in our view," the investment bank said.

Elsewhere, Mexican shares dropped, as investors took some profits following recent strong gains on signs the U.S. economy is on solid footing. Mexico’s economic health is tied closely to that of the U.S. since Mexico sends the vast majority of its exports north of the border.

In local corporate news, airport group Asur intends to bid on a new airport that the Mexican government is contemplating for an area that stretches along the Caribbean coast south from Cancun, also known as the Mayan Riviera.

Argentine issues retreated amid light trading volume, as a number of investors took the sidelines ahead of the Immaculate Conception holiday tomorrow.

Also, ongoing concerns about Argentina’s escalating inflation and uncertainty over the new finance ministers ability to contain it weighed on investor sentiment.

Investors have reacted negatively to the government’s efforts to contain prices by signing sector-specific agreements.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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