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Good Prospects for Brazil Don’t Prevent Market Fall

Latin American stocks slumped again this Wednesday, March 8, amid ongoing concerns over rising U.S. Treasury yields. Optimism about the outlook for Brazilian interest rates helped to limit losses, however.

Brazil’s Bovespa Index dropped 133.50 points, or 0.36%. Mexico’s benchmark Bolsa Index fell 152.25 points, or 0.82%, while Argentina’s Merval Index shed 0.42 point, or 0.02%.

Brazilian stocks dropped for a third straight day on worries about rising U.S. interest rates. The recent surge in U.S. Treasury yields has led many foreign investors to reassess their exposure to Brazilian stocks, according to news services.

The increase in yields has been seen as reflecting expectations of further U.S. interest-rate hikes to contain inflation. Higher U.S. rates tend to divert investment flows away from emerging markets like Brazil.

Helping to limit the Bovespa’s losses, investors were hopeful that Brazil’s central bank would announce an interest rate cut after the close of trading.

The bank was widely expected to cut its Selic interest rate by at least 75 basis points to 16.5%. Moreover, some investors were betting on a bigger cut of 100 basis points amid recent signs of easing inflation in February.

In economic developments, Brazil’s Applied Economics Research Institute (Ipea) raised its 2006 current account view to US$ 6.5 billion from its previous estimate of US$ 3.8 billion in December, following stronger-than-expected exports in January.

The Ipea noted that solid demand for Brazilian commodities and a greater range of products shipped has helped to offset the strengthening real’s negative impact on Brazilian exports. The Ipea also lowered its 2006 inflation estimate to 4.5% from 4.8%, in line with market forecasts.

Elsewhere, Mexican shares were once again hit by selling pressure, falling for the third-consecutive session. Investors continue to be concerned about rising U.S. interest rates.

Wireless firm America Movil announced its intentions to pay a dividend of 0.10 peso a share. The dividend will be proposed to shareholders at a meeting to be held before April 28.

In similar reports, soft-drink bottler Coca-Cola Femsa SA announced plans to pay a dividend of 0.376 peso a share on June 15.

Within the airline group, Asur said that total passenger traffic tumbled 16.7% in February, compared to the year-earlier period. The firm said that lower traffic figures to Cancun and Cozumel were the result of decreased accommodation available in those areas as a result of Hurricane Wilma.

Argentine shares finished little changed on the day, as earnings season winds to a close. Tomorrow, Telecom Argentina is scheduled to report its financial results, one of the last major firms to do so this season.

Meanwhile, flat steelmaker Siderar SAIC said last night that its fourth- quarter net profit fell to 233 million pesos from 487 million pesos a year earlier. Net sales edged down to 1.07 billion pesos from 1.14 billion pesos. For the full year, the firm’s net profit slid to 1.2 billion pesos from 1.3 billion pesos in 2004. Siderar shares tumbled on the day.

Elsewhere, Banco Macro Bansud said that it intends to issue 61.6 million Class B shares as part of a secondary public offering, in addition to its previously announced issuance of 75 million new Class B shares.

Source: Thomson Financial – www.thomsonfinancial.com

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