US Boost Gives Brazil a High

Latin American stocks were mixed, with Brazilian and Mexican shares gaining on upbeat U.S. economic data. Brazilian shares were also supported by a strengthening of the local currency. Meanwhile, Argentine issues dropped on continued worries about the country’s foreign currency reserves.

Brazil’s Bovespa Index rose 61.26 points, or 0.19%. Mexico’s benchmark Bolsa Index gained 14.54 points, or 0.08%, while Argentina’s Merval Index fell 13.08 points, or 0.87%.

Brazilian stocks climbed, as investors were cheered by a rise in the real against the U.S. dollar for the first time in nine sessions. The real was supported by the central bank’s move to cut the volume of dollar-linked debt swaps to investors at a daily auction.

Benign U.S. inflation data lent additional support to Brazilian shares. The U.S. producer price index fell 0.7% in November, reversing a 0.7% increase in October. The core PPI rose just 0.1% in November following a 0.3% decline in October.

Economists had expected the overall PPI to fall 0.5% in November and the core PPI to gain 0.2%. The data added to hopes the U.S. Federal Reserve is nearing the end of its interest-rate hiking cycle.

Closer to home, Brazil’s National Confederation of Industries predicted the country’s reference Selic interest rate would end 2006 at 15%. The group added that it expects Brazil’s economy to grow by 3.3% in 2006 amid inflation of 4.7%.

In other developments, Petrobras said it will earn US$ 294 million a year from the sale of electric power by 2010, following the sale of 1,391 average megawatts of future energy in an energy auction Friday.

Meanwhile, the Brazilian Central Bank said it tentatively rescheduled the auction of state bank Banco do Estado do Ceará to Wednesday. The auction, which had been scheduled for Tuesday, December 20, was halted by an injunction from a judge in Brasilia.

Elsewhere, Mexican stocks ended modestly higher, snapping a three-session losing streak, as investors were heartened by encouraging U.S. economic data. In addition to tame inflation figures, investors received other positive data in the form of stronger-than-expected housing starts.

U.S. housing starts rose 5.3% to a 2.123 million annual rate in November, marking the largest increase since April. Analysts had expected a 0.6% increase to a 2.025 million annual rate.

Among individual shares, Grupo Imsa SA continued to climb after saying yesterday that shareholders approved the plan to spin-off its plastic and aluminum construction components operations into a new company to be known as Verzatec SA.

Also, Homex shares gained after falling yesterday on news that Equity International Properties is cutting its stake in the company to 14% from 20%.

Argentine issues dropped for a third straight session amid continued concerns over the central bank’s level of foreign currency reserves after President Nestor Kirchner’s surprise announcement last week that the country was paying all of the US $9.8 billion it owes the International Monetary Fund

before the year end. Shares have also been pressured by doubts about the effectiveness of the new finance minister’s strategy to fight inflation.

Among economic indicators, the national statistics agency, INDIC, said October gross domestic product jumped 9.3% from a year earlier and gained 0.7% from September. Economists had expected a year-on-year increase of 8.7%.

On the corporate front, shares of Telecom Argentina dropped, as the company continued talks with the telephone workers union. Employees stopped working Monday and said they are planning a 48-hour strike beginning Wednesday unless an agreement is reached Tuesday.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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