Investors Cash in Profits Taking the Brazilian Market Down

Latin American stocks were mixed to lower, this Friday, January 27, with Brazilian and Mexican shares falling on profit taking following recent strong gains due to good news in the inflation front.

Mexican shares were further pressured by downbeat U.S. economic growth data, while in-line local inflation figures helped to limit Brazil’s losses. Argentina’s market rose on strength in steel issues.

Brazil’s Bovespa Index fell 192.14 points, or 0.51%. Mexico’s benchmark Bolsa Index dropped 260.25 points, or 1.35%, while Argentina’s Merval Index jumped 15.37 points, or 0.89%.

Brazilian stocks reversed early-session gains to end lower, as investors locked in some profits. Shares were boosted early in the day by a pair of economic reports showing tame inflation.

São Paulo’s Fipe research institute said its consumer price index rose 0.62% in the four weeks ended January 23, compared with a gain of 0.59% in the four weeks ended January 15. The results were in line with market forecast.

Meanwhile, the Brazilian Census Bureau said the official inflation rate as measured in the IPCA-15 accelerated to 0.51% in the December 14 to January 13 period, up from 0.38% in the November 15 to December 13 period. The result was in line with expectations for an increase of 0.40% to 0.60%.

Brazil’s central bank said at its last meeting that recent rises in inflation were temporary and 2006 inflation expectations remain below targets. Today’s data appeared to support that assessment.

Among the equity movers, steel shares benefited from expectations of consolidation in the sector after Dutch steel giant Mittal Steel confirmed it was offering to buy Arcelor for US$ 22.8 billion.

Shares of Arcelor Brasil, the holding company for Arcelor’s Brazilian steelmaking assets, posted robust gains. Other Brazilian steel makers also gained on the news.

Also, mining gaint CVRD was in focus after its board approved the stock-merger proposal to incorporate CVRD’s Caemi Mineracao.

Elsewhere, Mexican shares dropped, as investors reacted to data showing a bigger-than-expected slowdown in U.S. economic growth. U.S. gross domestic product rose 1.1% in the fourth quarter, below the third quarter’s 4.1% rate and economists’ forecasts of 2.6% growth. Mexico’s economic health is tied closely to that of the U.S. since Mexico sends nearly 90% of its exports north of the border.

Earlier in the sessions, Mexican shares climbed to an intraday record high after the Bank of Mexico slashed interest rates by 50 basis points, as expected. It was the sixth cut in as many months and the second-straight reduction of half a percentage point.

However, the bank continued caution that inflation risks remain and said that in the coming months it sees "limited room for further reductions in the monetary restriction."

Among individual shares, cement maker Cemex fell after the company reported a 27% drop in its fourth-quarter net profit compared to a year ago. EBITDA rose from a year earlier but missed the company’s preliminary estimate.

Bucking the down trend, Grupo Mexico advanced after its Peruvian unit, Southern Peru Copper, reported a higher fourth-quarter net profit.

Argentine issues gained ground, with the Merval getting a boost from strength in the shares of flat steelmakers Acindar and Siderar on news of Mittal’s bid for Arcelor.

Thomson Financial – www.thomsonfinancial.com

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