Again, World Oil Prices Put a Damp on Brazilian Markets

Brazilian and Latin American stocks dipped, Friday, January 20, as investors fretted over the inflationary impact of high oil prices, which surged above US$ 68 a barrel in New York.

Oil prices have been driven higher by recent violence in Nigeria, diplomatic tension over Iran’s nuclear program and worries about terrorist attacks. Shares were also pressured by profit taking following strong gains in regional markets.

Brazil’s Bovespa Index sank 163.54 points, or 0.44%. Mexico’s benchmark Bolsa Index dropped 175.22 points, or 0.95%, while Argentina’s Merval Index added 0.7 point, or 0.04%.

Brazilian stocks slumped, as a further run-up in oil prices prompted investors to take some profits following yesterday’s strong gains on enthusiasm over a 75-basis-point cut in interest rates by Brazil’s central bank January 18.

Rising global oil prices have fueled concerns about increased inflationary pressure in Brazil, which would diminish chances for an acceleration of local interest-rate cuts.

In corporate news, the board of directors of aircraft maker Embraer approved the company’s reorganization plan for its share structure.

Under the plan, Embraer will launch all its stocks on the Novo Mercado on the São Paulo Stock Exchange and American Depositary Shares on the New York Stock Exchange. The restructuring is aimed at increasing company transparency and liquidity.

Paper and pulp company Votorantim Celulose e Papel S.A. said it expects a 6% rise in pulp sales in 2006 and a 2% gain in paper sales. Earlier this week, VCP posted net 2005 profits of 549 million reais, down from 790 million reais in 2004.

Meanwhile, a major Wall Street bank increased its investment in Itaú in its Latin American model portfolio, citing clear earnings visibility, earnings growth upside and attractive valuation.

In other developments, a poll conducted by the Public Opinion Research Institute showed that Brazilian President Luiz Inácio Lula da Silva has regained some of his lost popularity and would win upcoming elections in a hypothetical matchup against São Paulo Mayor José Serra. The poll indicated that Lula would beat Serra 35% to 31%.

Elsewhere, Mexican shares dropped amid a mixed batch of local market news. Citigroup’s Mexican unit Banamex said its fourth-quarter net profit fell 13% in the fourth quarter to US$ 399 million. Revenue rose 15% to US$ 1.46 billion.

Meanwhile, cement maker Cemex was in focus a day after the U.S. and Mexico reached a trade agreement aimed at resolving the two countries’ long-running dispute over cement tariffs.

In research, a major investment bank reduced its exposure to Mexican equities to "underweight" from "neutral," saying "Mexico’s corporate and economic outlook does not justify the valuation premium it currently enjoys.  The bank also upgraded Chilean stocks to "neutral" from "underweight."

Argentine issues inched higher, supported by further gains in seamless steel tubemaker Tenaris after the company’s shares were upgraded by a major investment bank yesterday to "overweight" from "equal weight."

Also helping to keep the market afloat, Petrobras Energia Participaciones climbed after the planning manager of the oil giant’s operating unit, Petrobras Energia, was quoted in a local newspaper today as saying the company will invest US$ 261 million in hydrocarbons production this year. That would be a 20% increase from 2005.

On the economic front, Argentina’s Treasury Secretariat reported that Argentina posted a primary surplus of 19.62 billion pesos for all of 2005. The result for December was a surplus of 23.4 million pesos, compared to a year- earlier deficit of 2.063 billion pesos.

Thomson Financial – www.thomsonfinancial.com

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