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US Treasury Yields’ Jump Depresses Brazilian Stocks

Latin American stocks retreated, as a surge in U.S. Treasury yields amid signs of strength in the world’s biggest economy fueled concerns about higher U.S. interest rates.

Mexico’s bolsa was further pressured by profit taking despite upbeat local inflation and trade data. Brazil’s Bovespa Index sank 376.74 points, or 1.00%. Mexico’s benchmark Bolsa Index tumbled 342.24 points, or 1.75%, while Argentina’s Merval Index inched up 1.03 points, or 0.06%.

Brazilian stocks fell as a jump in U.S. Treasury yields added to worries that U.S. interest rates have further to rise. The rise in yields followed the release of data showing a bigger-than-expected increase in U.S. existing home sales in February. Higher U.S. interest rates often divert investment dollars away from emerging markets like Brazil.

In local economic news, Brazil’s official jobless rate rose to 10.1% in February from 9.2% in January, the Brazilian Census Bureau (IBGE) reported.

The increase was attributed to an influx of people looking for work as well as the dismissal of temporary workers hired for year-end sales. Despite the increase, the rate was still the lowest February rate in recent years.

On the corporate front, a major investment bank said Petrobras could increase investments by 20% to 30% at an upcoming revision of its five-year strategic plan. The jump in spending would be driven by continued price increases in the industry and the possible inclusion of a series of new products, the bank said.

Meanwhile, telecom giant Telemar began the sale today of non-convertible debentures worth US$ 1 billion. If the entire volume is sold, it will be the largest debenture sale ever in Brazil for a non-financial company.

Miner CVRD was in focus after saying that the shipment of about 1 million metric tons of Brazilian iron will be delayed during the first quarter of 2006 because of protests by Indian tribes at a key Amazon facility, Carajás.

In earnings news, electric power holding company Eletrobrás reported a 2005 net profit of 975 million reais, down from 1.29 billion reais the year before, as results were hurt by the real’s strength.

Mexican shares turned definitively lower today, following a string of consecutive gains that led to repeated all-time highs for the IPC index. Investors are looking forward to tomorrow’s central bank meeting on monetary policy, in which the overnight rate is expected to be cut to 7.25% from 7.5%. U.S. equities also dropped, partly due to inflation and interest rate fears following strong economic reports.

On the economic front, the Bank of Mexico said that consumer prices rose a much smaller-than-expected 0.04% during the first half of March amid a drop in prices of chicken, tomatoes and other fresh produce. Analysts were looking for a 0.16% advance in prices, on average.

The most recent reading reduces annual inflation to 3.4% from 3.75% at the end of February. Core inflation, which excludes fresh fruit and vegetables, energy and education costs, jumped 0.23% to an annual 2.93%.

Elsewhere, the National Statistics Institute, or Inegi, reported that Mexico posted a second-straight monthly trade surplus, thanks to high oil prices and growth in vehicle exports. For February, the trade surplus arrived at US$ 461 million, despite an expected deficit by analysts.

Cement maker Cemex announced late last night this it will spend more than 47 million euros to build a new cement mill and dry mortar production plant at the Port of Cartagena in Spain by the first quarter of 2008. The facilities would have a production capacity of nearly 1 million tons of cement and 200,000 tons of dry mortar per year.

Standard & Poor’s Ratings Services reduced its long-term local and foreign currency corporate credit ratings assigned to Vitro to B- from B.

Argentine shares barely moved on the day on low trading volume. Investors are not taking kindly to the government’s recent repeal of water firm Aguas Argentinas’ contract. Meanwhile, a US$ 500 million sovereign bond auction Wednesday, March 22, reduced market liquidity.

Thomson Financial – www.thomsonfinancial.com

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