Brazilian Investors Keep Stocks Falling by Cashing Profit

Latin American stocks were mixed to lower, with Brazilian shares dipping on continued profit taking, while Mexico’s Bolsa dropped despite strong earnings from a local telecom giant.

Bucking the downtrend, Argentine issues managed solid gains. Brazil’s Bovespa Index dipped 62.29 points, or 0.17%. Mexico’s benchmark Bolsa Index dropped 254.82 points, or 1.37%, while Argentina’s Merval Index jumped 22.49 points, or 1.33%.

Brazilian stocks slumped, as investors digested a mixed batch of earnings news, while continuing to cash in some of the market’s stellar January gains.

The Bovespa rallied nearly 15% in January amid expectations of solid economic growth and a further decline in interest rates in 2006.

On the earnings front, long steel maker Gerdau said its fourth-quarter net profit rose to 730.5 million reais from 635.8 million reais in the year-ago period. For the year, net profit edged up 0.3% to 3.245 billion reais from 3.235 billion reais in 2004.

Results benefited from recently acquired units and increased exports, which helped to offset weaker prices and slack domestic demand. Net revenue declined 0.2% to 4.886 billion in the fourth quarter and jumped 8.4% in 2005.

Meanwhile, petrochemical firm Braskem swung to a fourth-quarter net loss of 5 million reais from a net profit of 487 million reais a year earlier, hurt by a strengthening local currency. Net revenue rose to 2.83 billion reais from 2.8 billion reais a year earlier.

The company said a 5% strengthening of the real "neutralized" a 3% reduction in the price of naphtha, a key raw material used by the company. Net profit for full year 2005 fell to 677 million reais from 691 million reais in 2004.

In research, an influential investment bank raised its price target for cable TV company NET Serviços to US$ 6 from US$ 5.75, citing a positive economic outlook.

Elsewhere, the National Association of Financial Market Institutions (ANDIMA) said it expects Brazil’s gross domestic product to grow by 3.5% in 2006, despite some financial market volatility amid the October presidential election.

"The political campaign could create a somewhat more volatile environment in 2006, which will be reflected in Brazil’s economic indicators. However, volatility will not be as great as it was in 2002."

ANDIMA added that it sees 2006 inflation at 4.5%, matching the government’s target. Inflation in 2005 was 5.69%, slightly above the government’s target of 5.1%.

Mexican shares moved lower for the fourth-straight session, reversing course from earlier strength on the back of America Movil’s stronger-than-expected fourth-quarter results. Investors are looking forward to Walmex’s financial release tomorrow after the market close.

Wireless titan America Movil posted quarterly sales of 52.4 billion pesos, up 27.6% from a year ago when sales were 41.1 billion pesos. Net profit reached 14.4 billion pesos, compared to 1.68 billion pesos last year. EBITDA surged 45.6% to 15.2 billion pesos.

America Movil added 9.7 million subscribers in the most recent quarter, bringing the total to 93.3 million. For the full year, the firm posted net earnings of 31.6 billion.

Elsewhere, airport operator Asur said that its passenger traffic declined 23.5% in January to 976,053 from 1.28 million passengers in the corresponding period a year ago. The decline incorporated the continued negative effects of last October’s hurricane, which hampered tourism in Cancun and Cozumel.

Argentina turned higher today, ignoring weakness elsewhere in the region. Economy Minister Felisa Miceli said in a meeting with senators today that the local government expects month-on-month inflation to arrive at less than 1% in February, according to sources present at the meeting.

In earnings news, natural gas pipeline operator TGS posted a fourth-quarter net profit of 8.5 million Argentine pesos, compared to 78.7 million pesos a year ago. For the full year, net profit arrived at 217.6 million pesos, up from 147.9 million pesos in 2004.

Elsewhere, Spanish-Argentine oil and energy firm Repsol YPF is in talks with Russia’s OAO Gazprom to join forces on liquefied natural gas projects. Earlier this week, Repsol acquired 10% of Sweden’s West Siberian Resources Ltd.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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