Hint of Scandal Involving Finance Minister Shakes Brazilian Market

Latin American stocks turned mixed on the day, as Brazil moved lower, while Mexico and Argentina advanced. Mexico surged, as the country was strongly aided by benign U.S. inflation data. Argentina also received support from some upbeat domestic economic reports.

Brazil’s Bovespa Index dipped 87.35 points, or 0.23%. Mexico’s benchmark Bolsa Index jumped 166.79 points, or 0.88%, while Argentina’s Merval Index surged 17.96 points, or 1.00%.

Brazilian shares moved lower ahead of an options expiry this coming Monday. Political turmoil resurfaced in Brazil today. A witness testified before a Senate committee that Finance Minister Antonio Palocci visited a Brasí­lia house that has been linked to a kickback scheme.

On the economic front, the National Confederation of Industries, or CNI, said that industrial capacity fell to 80.4% in January, compared with 82.7% in the corresponding period a year ago.

December’s reading was 80.7%. Separately, minutes from the Brazilian Central Bank’s March meeting indicated a continued gradual decline in the country’s Selic base rate.

Supermarket chain CBD said that its nominal same-store sales dipped 1.6% in February from a year ago, while same-store sales, when adjusted for inflation, dipped 0.4% in February from a year ago. Gross sales jumped 2.9% on the year last month to 1.259 billion reais. Net sales rose 3.8% to 1.057 billion reais.

Meanwhile, the Brazilian Steel Institute said that domestic crude steel production slumped 17.7% in February from a year ago due to stoppages for maintenance and accidents.

In Mexico, economic news on both sides of the border garnered attention. U.S. consumer prices were benign in February, reducing inflationary concerns. Also, the Philly Fed business activity index continued to expand last month.

Domestic industrial production was bolstered by continued strength in the automotive and construction sectors. Industrial output rose 6% in January from a year ago, easily beating analyst expectations.

Turning to corporate news stories, homebuilder Consorcio Ara increased its growth estimates for 2006. The firm sees home sales rising 20% this year, up from its prior estimate of 12%. That firm’s shares rose on the session.

Elsewhere, state-oil firm Pemex said that its proven hydrocarbon reserves stood at 16.5 billion barrels of crude-oil-equivalent as of January 1, down from 17.6 billion barrels a year ago.

Argentine issues continued to rally today, as most shares within the benchmark Merval Index saw gains. Economic reports were also in focus today.

In economic news, the national statistics agency, or Indec, said that gross domestic product rose 2.1% in the fourth quarter of last year from the third quarter, while advancing 9.1% year-over-year. Separately, February manufacturing activity surged 8.6% on the year and 3.1% on the month.

Banks were positive on the session. Banco Marcro Bansud advanced ahead of its listing in U.S. markets. The firm announced last night that the preferential subscription for its 75 million new Class B shares will begin March 22.

Thomson Financial – www.thomsonfinancial.com

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