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Iran’s Defiance Cools Down Brazilian Bulls

Latin American markets were mostly higher, with Brazilian stocks edging up, as continued optimism about the local economy’s prospects in 2006 helped to offset mounting concerns over Iran’s nuclear ambitions.

Meanwhile, Argentine issues rallied on bargain hunting. Mexico’s market was closed for a holiday.

Brazil’s Bovespa Index gained 59.47 points, or 0.16%, while Argentina’s Merval Index jumped 22.45 points, or 1.32%.

Brazilian stocks edged up amid continued expectations for solid economic growth and further interest-rate declines in Brazil this year.

However, gains were limited by an early-session rise in oil prices on news over the weekend that Iran ended voluntary cooperation with the International Atomic Energy Agency and said it will start uranium-enrichment activities.

Buyer enthusiasm was also limited by some gloomy analyst commentary on local companies. An influential investment bank downgraded steel maker CSN to "underperform" from "peer perform" after the company’s ADRs surged nearly 40% in the first five weeks of 2006. "At current levels we have a hard time justifying the risk/reward for CSN shareholders," the bank said.

The investment bank also downgraded private banking giant Bradesco to "peer perform" from "outperform," citing valuation. "After the significant rise of BBD’s stock in 2005 (132%) and so far in 2006 (30%), our expected total return in 2006 of 7.6% no longer merits an Outperform rating," the investment bank said.

In other news, Brazil’s Civil Aviation Department said paying passengers on Brazil’s domestic airlines flew a total of 3.75 billion kilometers in January, up 21.1% from a year earlier. The increased traffic was attributed largely to the rising number of flights run by TAM SA and Gol Linhas Aéreas.

Meanwhile, the National Confederation of Industries reported that Brazil’s industrial sales rose by more than 2% in 2005 from a year earlier.

Elsewhere, Argentine shares leapt on the day, gaining back some of the losses incurred last week when profit-taking took hold. Investors are still awaiting the onslaught of the fourth-quarter earnings season. Also on the docket for next week is the expiration of options contracts.

In telecom news, Telefonos de Mexico’s subsidiary in Argentina accused Telefonica de Argentina and Telecom Argentina of unfair competitive practices stemming from a public tender for a police communications system in Mendoza province. The firm said it may put forward a formal complaint with the Argentine government.

Elsewhere, Aerolineas Argentinas was threatened by its Argentine pilots and mechanics unions regarding an open-ended strike. The unions claim the airline is transferring assets to other units of the company.

Thomson Financial – www.thomsonfinancial.com

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