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Fed Chief’s Comments Scare Off Brazilian Investors

Brazilian stocks retreated on concerns that the U.S. Federal Reserve’s interest-rate hiking cycle will continue longer than expected. Mexico’s stock market was closed for a national holiday.

Brazil’s Bovespa Index dropped 805.52 points, or 2.11%, while Argentina’s Merval Index fell 10.79 points, or 0.59%.

Brazilian stocks sank, as hawkish comments from U.S. Federal Reserve Chairman Ben Bernanke stoked concerns that U.S. interest rates have further to rise. The comments fueled expectations that the Fed will hike interest rates at its meeting next week and again in May.

Adding to rate concerns, U.S. producer price index data released this Tuesday, March 21, showed that core inflation was higher than expected in February. Higher U.S. interest rates tend to divert investment flows away from emerging markets like Brazil.

In local economic news, Brazil posted a February current account surplus of US$ 725 million, reversing a January current account deficit of US$ 452 million. That brought the 12-month current account surplus to US$ 13.54 billion, equal to 1.69% of gross domestic product.

Meanwhile, Brazilian retail sales volume rose a seasonally adjusted 2.35% in January from December. In December, retail sales volume rose 1.19% compared with November. Retail sales gained 6.54% in January from a year earlier. Retail sales for the 12 months ended January 31 rose 4.87%.

In corporate news, Petrobras said it won 10 exploration and production blocks off the U.S. coast of the Gulf of Mexico. Petrobras agreed to pay US$ 22.3 million for the ten blocks, and the firm’s U.S. unit plans to invest US$ 305 million in oil and gas exploration and production development activities in 2006.

On a down note, the Rio de Janeiro government said Petrobras owes it 800 million reais in special royalty arrears, a local newspaper reported.

Mining firm CVRD and steelmaker Usiminas are mulling a plan to build a US$ 3 billion steelmaking complex in Brazil’s southeast region, news services reported.

Argentine shares turned lower on the day, in line with Brazil. Investors are also jittery regarding U.S. interest rates, following last night’s speech by Federal Reserve Chairman Ben Bernanke, which failed to signal an end to the current cycle of interest-rate increases.

Last night, the Treasury Secretariat reported that Argentina posted a primary surplus of 1.904 billion pesos in February, up 37% from a year ago

In corporate news, Banco Patagonia SA said that it is still in the early stages of planning for a public listing, which could happen within a year.

Thomson Financial  – www.thomsonfinancial.com

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