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Lula Is Ahead in the Polls. This Time Around Brazilian Markets Cheer.

Latin American stocks advanced, with Brazilian shares getting a boost from robust local retail sales figures, while Mexico’s bolsa found strength in stronger-than-expected U.S. retail sales data.

Brazil’s Bovespa Index jumped 512.93 points, or 1.42%. Mexico’s benchmark Bolsa Index climbed 139.38 points, or 0.78%, while Argentina’s Merval Index dipped 3.33 points, or 0.20%.

Brazilian stocks rallied, as investors were cheered by upbeat local retail sales data. The Brazilian Census Bureau, or IBGE, reported that retail sales volume rose a seasonally adjusted 1.19% in December from November, in line with expectations of 0.50% to 2.50%.

Retail sales climbed 4.28% in December from a year earlier. According to IBGE, December sales "represented the best results for retailers in the second half of 2005."

In other developments, a public opinion poll released today by the Sensus polling organization showed Brazilian President Luiz Inácio Lula da Silva favored to win reelection in October.

The poll showed that Lula would get 40.2% of the vote, while his biggest opponent, Social Democrat José Serra, would get 28.6% of the vote, and former Rio de Janeiro governor Anthony Garotinho would be in third place with 10.5% of the vote.

Both Lula and Serra are regarded as market-friendly candidates. Four years ago, polls putting Lula ahead in the presidential race gave the financial market the jitters.

On the corporate front, paper and pulp producer Klabin Celulose e Papel S.A. posted fourth-quarter net profits of 26.1 million reais, down sharply from 89.2 million reais a year earlier, due largely to the impact of the real’s appreciation against the U.S. dollar.

Meanwhile, budget airline Gol said it added flights between Argentina and Paraguay. That is the airline’s sixth South American destination outside of Brazil.

Mexican shares finally turned higher, after bargain hunters moved in following recent weakness. Tomorrow, investors will be looking for fourth-quarter and full-year 2005 gross domestic product data.

Investors also looked to strength in the U.S. markets today, as retail sales were stronger than expected in January. The majority of Mexican exports are sent to the northern neighbor.

Topping earnings headlines, fixed-line phone company Telmex posted lower fourth-quarter results due to declines in voice services and higher financial costs. Telmex’s sales slipped to 41.33 billion pesos from 42.46 billion pesos a year earlier.

Net profit fell to 7.78 billion pesos from 10.77 billion pesos last year, while EBITDA declined 1.8% to 18.33 billion pesos. Telmex plans to invest US$ 2.1 billion in 2006, the same amount invested in 2005.

Argentine shares moved lower for the fourth-straight session, while volume levels improved somewhat, as options contracts are set to expire later this week.

Investors are still awaiting Argentina’s earnings season to kick into high gear. Last night, Banco Frances reported that it swung to a fourth- quarter net profit, reversing a year-earlier loss.

Thomson Financial – www.thomsonfinancial.com

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