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Profit Taking Drags Brazil’s Bovespa Down

Latin American stocks were mixed, with Brazilian stocks pulling back, as investors opted to cash in some of last week’s strong market gains. A flurry of mixed corporate news and caution ahead of this week’s key economic data also helped to direct trading. Meanwhile, Mexican shares extended the previous week’s run-up.

Brazil’s Bovespa Index dropped 137.69 points, or 0.39%. Mexico’s benchmark Bolsa Index rose 262.05 points, or 1.40%, while Argentina’s Merval Index added 4.83 points, 0.30%.

Brazilian stocks dipped, as investors took some profits following last week’s impressive gains on expectations for solid economic growth, tame inflation and further declines in interest rates in 2006.

Shares were also pressured by investor caution ahead of key economic data due out later this week, including industrial output tomorrow and inflation figures on Thursday.

The data may help to shape the outcome of the Brazilian central bank’s next monetary policy meeting on January 18. The bank is currently expected to cut interest rates by at least 50 basis points at that meeting.

In corporate news, Petrobras said it achieved record refinery output in 2005 for a second-straight year. Last year, the company processed an average 1.758 million barrels of oil per day, up from a daily average of 1.728 million barrels in 2004.

Steel maker CSN was in focus after a major investment bank upgraded the stock to "buy" from "neutral," citing stronger fundamentals in the domestic steel industry and improved output in the company’s iron ore mining operations.

Meanwhile, budget airline Gol was downgraded by an investment bank to "peer perform" from "outperform" in a valuation call.

Grocer CBD said its board unanimously approved the appointment of former Banco do Brasil president Cássio Casseb as the company’s new president.

Elsewhere, Mexican shares surged, extending last week’s strong gains on optimism about the local economy and hopes the U.S. Federal Reserve will soon end its interest-rate hiking cycle.

On the corporate front, airport operator Asur said that passenger traffic in December dropped 28.4% from a year earlier, as several of its airports continued to feel the impact of Hurricane Wilma, which hit the Caribbean coast in October.

Cement giant Cemex was downgraded by an investment bank to "peer perform" from "outperform." The bank said positive news is likely already priced into the company’s shares, which are up sharply from last year.

Meanwhile, another investment bank reinstated coverage of tortilla and flour maker Gruma with a "buy" rating, saying the company’s market segment has more room to grow.

In other developments, the Mexican stock exchange said airline holding company Cintra SA, airport operator Grupo Aeroportuario del Sureste SA, steel firm Industrias CH SA, homebuilder Sare Holding SA and building company Carso Infraestructura y Construccion will join the benchmark IPC index in February.

The reconfiguration will leave out of the IPC index entertainment firm Corporacion Interamericana de Entretenimiento, bottler Grupo Continental, conglomerates Desc SA and Grupo Imsa SA, and cement maker Grupo Cementos de Chihuahua SA.

Argentine issues edged higher, adding to last week’s gains. Trading volume was light, amid a dearth of market news, as the Southern Hemisphere summer holiday season gets underway.

Banco Macro Bansud was in focus after the company filed a registration statement Friday with the U.S. Securities and Exchange Commission to list American Depositary Receipts. The move was part of a plan announced in late August to list 75 million new Class B shares on overseas and local markets.

Thomson Financial – www.thomsonfinancial.com

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