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Bad News on Industry Output Sends Brazil Downhill

Brazilian and Latin American stocks slumped, as investors took some profits following strong gains for the region’s equity markets in the first week of the year on expectations that the U.S. monetary tightening cycle is close to ending. Brazilian stocks were further pressured by slightly disappointing industrial output data.

Brazil’s Bovespa Index dropped 287.91 points, or 0.81%. Mexico’s benchmark Bolsa Index fell 86.45 points, or 0.46%, while Argentina’s Merval Index shed 4.71 points, 0.29%.

Brazilian stocks dropped, as investors digested lackluster industrial output data while continuing to take profits following a recent rally. The Brazilian Census Bureau, or IBGE, said Brazilian industrial output rose 0.6% in November from October and gained 0.6% from a year earlier as well.

The month-on-month result was at the bottom end of market expectations for output growth between 0.57% and 1.60%. On an up note, the data signaled a slight recovery from disappointing October figures while at the same time reinforcing expectations the central bank will extend its cycle of interest-rate cuts at its next meeting on January 18.

Shares were also pressured by investor caution ahead of Thursday’s release of key inflation data, which could help to shape the outcome of the central bank’s next monetary policy meeting.

In corporate news, Petrobras said it will invest US$ 1 billion over four years in its oil refinery Refinaria Duque de Caxias, outside of Rio de Janeiro city.

Elsewhere, Mexican shares dipped, as investors cashed in some of the market’s recent strong gains on optimism about the local economy and expectations the U.S. Federal Reserve is nearing the end of its interest-rate hiking cycle.

In the latest sign the Mexican economy is on solid footing, the National Statistics Institute reported that Mexico’s economy grew 3.1% in October from a year earlier and was nearly unchanged from September after seasonal adjustments.  However, the year-over-year result was below economists’ expectations for growth of 3.5%.

In other data, the Auto Industry Association said Mexico’s auto production rose 6.6% in 2005 to 1.6 million units, snapping a string of four years of declines. Exports rose 8.4% last year to 1.2 million units, and domestic sales rose 3.3% to 1.1 million units.

On the corporate front, Walmex said late yesterday that it posted record sales of US$ 15.5 billion in 2005, with same-store sales up 5.8% from 2004. "These strong top-line figures should translate into further expense dilution and very strong 4Q05 results (to be released on February 9)," a brokerage said in a research note.

Argentine issues dipped, as investors took a breather from a recent rally following heavy losses in December on worries about local inflation and the government’s decision to repay its entire debt with the International Monetary Fund ahead of schedule. There has been a dearth of market news so far this week, given the start of the Southern Hemisphere summer holiday season.

Thomson Financial – www.thomsonfinancial.com

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