In Brazil Two Market Record Days Are Followed by Dive

Latin America gave up some of the impressive gains collected yesterday when Brazil and Mexico’s key indices reached new highs. Meanwhile, Argentina bucked the broader regional trend and surged on word Argentina will pay back its entire US$ 9.8 billion debt to the IMF.

Brazil’s benchmark Bovespa Index fell 436.20 points, or 1.30%, while Mexico’s benchmark Bolsa Index tumbled 131.56 points, or 0.73%. Argentina’s Merval Index rallied 29.42 points, or 1.93%.

Brazilian stocks gave in to profit-taking, after the benchmark Ibovespa stock index tallied record highs on both Tuesday and Wednesday. In economic headlines, the Brazilian Central Bank’s monetary policy committee, or Copom, cut the reference lending rate for a fourth consecutive month.

The reference Selic rate was reduced to an annual 18% from 18.50%, with no bias for rates going forward. The move was widely expected from economists.

Brazil’s state-run oil firm Petrobras announced that its November oil output rose 0.6% to 1.734 million barrels a day from 1.723 million b/d in October. The most recent results came despite a temporary halt in production in the Amazon and while an offshore well was re-established.

Meanwhile, supermarket chain CBD said that its nominal same-store sales rose 1.4% in November, compared to the same month a year ago, aided by sales on non-food products. Still, same-store sales, when adjusted for inflation, tumbled 4.5% in November from a year ago.

Mining firm CVRD announced that it will hold a 9% stake in the Ceará Steel joint venture project in Northeast Brazil. The project is a joint venture between South Korea’s Dongkuk Steel and Italy’s Danieli & C. Officine Meccaniche. CVRD declined on the day.

Airline Varig filed a petition today to quickly end the bankruptcy proceedings it started in July, which was subsequently denied by a local civil court. The firm has until January 8 to present a restructuring plan, under the terms set by the bankruptcy court.

Mexican shares also moved lower, following three straight sessions of record gains. Investors also monitored a batch of U.S. economic reports, including a plunge in November consumer prices, which marked the largest drop in 56 years. Industrial production and capacity use also advanced ahead of expectations last month.

A major investment bank raised Grupo Televisa’s rating to "overweight" from "equal weight" and initiated a 2006 year-end price target of US$ 92. The broker also maintained an "underweight" rating on fixed line Telmex with a price target of US$ 19.

Argentine issues rallied late in the day on speculation about the country’s debt repayment to the International Monetary Fund. After the market closed, news agencies reported that Argentine President Nestor Kirchner said the country will make a US$ 9.8 billion payment by the end of the year, instead of gradually over the next four years, which is estimated to save Argentina about US$ 1 billion in interest.

On the economic front, the national statistics agency, or INDEC, said that the gross domestic product rose 2.3% in the third quarter from the second quarter, and jumped 9.2% on the year, above expectations.

Aluminum producer Aluar is reducing prices on aluminum for packaging of basic consumer products by 15%. The move is in line with the government’s policy to lower inflation by signing sector-by-sector accords.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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