Unchanged 9.6% Jobless Rate in Brazil Is Good News for Market

Latin American stocks climbed, with Brazilian shares posting some of the region’s biggest gains, on optimism about the country’s economic and monetary policy outlooks. Meanwhile, Mexican issues were supported by solid local retail sales data.

Brazil’s Bovespa Index rallied 450.52 points, or 1.36%. Mexico’s benchmark Bolsa Index gained 100.56 points, or 0.57%, while Argentina’s Merval Index added 1.91 points, or 0.13%.

Brazilian stocks jumped amid expectations for solid economic growth and further interest-rate cuts next year. Brazil’s economy is expected to expand by 3.5% to 4.0% in 2006. Meanwhile, analysts largely expect more cuts to Brazilian interest rates early in 2006.

Tomorrow, the central bank is scheduled to release minutes from its December monetary policy meeting. The minutes are expected to show the bank’s intention to continue its monetary easing cycle started in September.

Among economic indicators, the Brazilian Census Bureau reported that Brazil’s official jobless rate was unchanged in November from October at 9.6%. It was the third straight month that the rate was flat. However, the jobless rate was down from the 10.6% rate a year earlier. Analysts had expected a November reading between 9.0% and 9.6%.

On the corporate front, a Brazilian appeals court lifted an injunction blocking signature tomorrow of new 20-year contracts for Brazil’s main fixed- line telephone companies, according to local news services.

The Brazilian Telecommunications Authority had originally scheduled Thursday as the day to secure new 20-year contracts with the country’s fixed-line companies. The injunctions had been obtained last week by consumer groups seeking more consumer-friendly clauses in the contracts.

Shareholders of steel company Belgo-Mineira voted to approve changes in the company’s name and structure, creating Arcelor Brasil. Arcelor created Arcelor Brasil as part of a move to consolidate its stakes in Belgo-Mineira, Companhia Siderúrgica de Tubarão and Vega do Sul.

The Brazilian Central Bank sold the state bank of Ceará, or BEC, to Banco Bradesco at a public auction for 700 million reais. The auction had originally been scheduled for yesterday but was blocked by injunctions obtained by bank workers’ unions.

Elsewhere, Mexican shares gained ground, as investors were cheered by signs the local economy remains on solid footing. The National Statistics Institute reported late in today’s trading session that Mexican retail sales jumped 3.8% in October from a year earlier but dipped 0.18% from September.

In other developments, the Minimum Wage Commission said the government, private sector and union representatives agreed to raise the minimum wage by 4% as of January 1st in all three wage regions. That will bring the minimum wage to 48.67 pesos (US$ 4.50) a day in zone A, which includes Mexico City. Wages in zones B and C will be slightly lower than that.

Among individual shares, brewer Grupo Modelo rose after a major investment bank raised its earnings and price targets for the company, citing a lower effective tax rate and cost-cutting measures.

Meanwhile, another investment bank started coverage of telecom carrier Axtel SA at "neutral," citing the risk of competing with Telefonos de Mexico SA.

Argentine issues edged up, as investors went in search of bargains following recent losses on 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.

Kirchner said late yesterday that the government will now wait until January 2 to make the payment. Also, the Argentine Senate today approved the plan to pay off the entire debt.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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