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US’s Good News Is Bad News for Brazilian Investors

Latin American markets were mostly lower, with Brazilian and Mexican shares declining amid worries that U.S. inflation could be on the rise. Meanwhile, Argentine stocks edged up amid data showing Argentine inflation rose in line with expectations in January.

Brazil’s Bovespa Index fell 42.46 points, or 0.11%. Mexico’s benchmark Bolsa Index dropped 198.20 points, or 1.04%, while Argentina’s Merval Index inched up 3.98 points, or 0.23%.

Brazilian stocks slipped on continued profit taking and worries about rising inflation and interest rates in the U.S. Data released today showed that the U.S. unemployment rate fell to a 5-year low of 4.7% in January, while payrolls logged a robust gain of 193,000, suggesting the economy is on solid footing.

Also, average hourly wages rose more than expected, adding to concerns about mounting inflation. The data fueled concerns that the Federal Reserve may be forced to continue its interest-rate hiking campaign longer than expected in a bid to contain inflation. Higher U.S. interest rates tend to divert investment away from emerging markets like Brazil.

Closer to home, São Paulo’s Fipe research foundation said consumer inflation in São Paulo was 0.5% in January, up from a rate of 0.29% in December but below expectations of a rate between 0.55% and 0.70%.

Meanwhile, Brazilian Central Bank President Henrique Meirelles said Brazilian inflation is moving toward the government’s targets, which should allow the country to reduce interest rates in real terms.

"Overall, prospects for 2006 are excellent. The year 2006 will be one of rising incomes and rising consumption for Brazilians," he said, adding that "inflation rates will tend to converge toward government targets over the next several years."

In corporate news, paper and pulp company Suzano has secured 2.4 billion reais in financing from the government-controlled Brazilian Development Bank (BNDES), for its Mucuri pulp project in southern Bahia state, the BNDES said.

A Brazilian court late yesterday struck down an injunction won by CVRD upholding a decision by antitrust officials in a case involving approval of CVRD’s purchase of several smaller mining companies.

In research, a major investment bank downgraded bank Nossa Caixa to "neutral 2" from "buy 2," citing valuation. "The stock’s recent strong performance has trimmed upside potential to our target price of 55 reais (US$ 24.77)," the bank said.

On the earnings front, meatpacker Perdigão SA reported a fourth-quarter net profit of 109.1 million reais, up from 84.3 million reais a year ago. Results were helped by an increase in exports and higher domestic sales.

In other news, Brasil Telecom Participações said it has cut 12% of its workforce as part of a move to increase efficiency by combining the marketing and the sales force of the fixed-line, mobile and broadband departments.

Elsewhere, Mexico’s bolsa sank, amid heightened concerns about inflation in the U.S. A mixed batch of corporate news was also in focus.

Shares soft drink bottler Arca fell after the company said it plans to enter the processed food business through a stake in Mexican food group Herdez. A brokerage lowered its recommendation on Arca following the news.

An influential investment bank upgraded Banorte to "buy" from "neutral," citing an attractive valuation and a solid earnings outlook. The bank added Banorte to its model Latin American portfolio today.

Argentine issues edged up, as investors digested the latest local inflation data. The national statistics agency reported that Argentine consumer prices rose 1.3% in January from December, in line with expectations.

Thomson Financial – www.thomsonfinancial.com

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