Lower Interests and Higher Surplus Fuel Brazilian Market Rebound

Brazilian stocks bounded higher, recovering from a bout of heavy profit taking in recent sessions all over Latin America. Brazilian shares were supported by news of a sizeable interest-rate cut.

Brazil’s Bovespa Index jumped 1053.0 points, or 2.94%. Mexico’s benchmark Bolsa Index climbed 255.49 points, or 1.40%, while Argentina’s Merval Index soared 55.66 points, or 3.38%.

Brazilian stocks surged as investors cheered news that Brazil’s central bank decided to cut the Selic benchmark interest rate by 75 basis to 17.25% per year. The bank has reduced the rate, which hit a high of 19.75% in August, at its last five meetings.

The cut was in line with expectations. However, for the first time, the bank said in its accompanying policy statement that it continues to watch for indications of inflationary pressure.

The inflation comments along with inflation data released today fueled speculation that the bank will not significantly pick up the pace of future interest-rate cuts.

The Getúlio Vargas Foundation said Brazil’s General Price index (IGP-M) jumped 0.82% in the 10 days through January 20, compared with a decline of 0.06% in the same period of December.

In other economic data, the central bank said Brazil logged a record current-account surplus in its overseas accounts of US$ 14.2 billion in 2005, up from US$ 11.7 billion in 2004 and marking the third consecutive year that Brazil posted a current account surplus.

On the corporate front, aircraft maker Embraer announced late yesterday that it sold five 50-seat ERJ-145 jets to China Eastern Airlines.

Meanwhile, airline Gol said it will start operating daily flights to Panama, in a code-share agreement with Panama’s Copa Airlines.

Elsewhere, Mexican shares rose following declines in recent sessions on profit taking. In the news, the U.S. and Mexico reached agreement on a deal that would reduce U.S. import duties on Mexican cement, while opening Mexico’s market to U.S. exports, news services reported, citing sources close to the matter. In addition, U.S. import tariffs would be phased out over three years.

Meanwhile, state oil giant Pemex said crude oil production rose to 3.39 million barrels a day in December from 3.31 million barrels a day in November. However, the company added that average output ended 2005 below 2004 levels.

Argentine issues surged on a broker upgrade of Tenaris and upbeat local economic data. Shares of steel pipe maker Tenaris rallied after an influential brokerage upgraded the stock to "overweight" from "equalweight," saying the company should benefit from "strong industry fundamentals."

On the economic front, national statistics agency INDEC said the Argentine economy grew 9.1% in November from a year earlier and rose 0.9% on the month. For the 11 months through November, the economy expanded 9.2%.

Economists had expected year-on-year economic growth of 8.3% in November. INDEC also upwardly revised October data to show growth in that month of 9.5% on the year and 0.8% on the month.

Meanwhile, Argentine consumer confidence surged 11.9% in January from December and rose 0.45% from a year ago.

Thomson Financial – www.thomsonfinancial.com

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