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Signs of Fiscal Austerity Help Boost Brazil’s Stocks

Brazilian and Latin American stocks in general gained ground, as investors bought discounted shares following Tuesday’s (March 28) sell-off on worries the U.S. monetary tightening cycle may last longer than expected.

Brazil’s Bovespa Index jumped 809.36 points, or 2.21%. Mexico’s benchmark Bolsa Index climbed 202.36 points, or 1.07%, while Argentina’s Merval Index added 7.61 points, or 0.42%.

Brazilian stocks posted robust gains, as investors went in search of bargains following the sell-off on a finance ministry shakeup and indications from the U.S. Federal Reserve that more interest-rate hikes are on tap.

The Fed hiked rates by 25 basis points and said lingering risks to inflation may necessitate further tightening, disappointing some investors who had hoped the Fed would signal an end to its hiking cycle. Higher U.S. interest rates tend to divert investment flows away from emerging markets like Brazil.

Meanwhile, reassuring comments from newly appointed Finance Minister Guido Mantega helped to ease concerns that he might abandon the fiscal austerity policies of his predecessor, Antonio Palocci.

In comments made earlier this week, Mantega indicated that local interest rates would continue to come down from their sky-high levels and that the pace of reductions might even accelerate.

Helping to ease concerns that recent corruption allegations would ensnare President Luiz Inácio Lula da Silva, an investigation into an alleged bribery network among members of Brazil’s Congress found today that Lula was not responsible for the illicit actions of subordinates and political allies in the scheme.

"Responsibility cannot lie with the president simply for occupying the top of the power structure of the executive branch, which would mean holding him responsible independently of his awareness of the activity or not," the investigative committee report said.

The report also recommended the indictment of 18 members of congress linked to the scandal.

In corporate news, steel maker CSN said the company is not for sale and is seeking acquisitions. The statement followed market speculation earlier this week that Mittal Steel and Arcelor were trying to buy CSN.

Telecom giant Telemar completed today the sale of non-convertible debentures worth 2.16 billion reais, the largest debenture sale ever in Brazil for a non- financial company.

A major investment bank raised its 2006 and 2007 earnings estimate for U.S.- listed shares of Brazil’s state-run oil firm Petrobras, citing modestly higher oil prices in 2006, and somewhat stronger foreign exchange assumptions. Separately, Petrobras said yesterday that its executive board has approved the location for a new petrochemicals refinery that will require an initial investment of US$3.5 billion.

Elsewhere, Mexican shares advanced after retreating the past two days amid expectations of further U.S. interest-rate increases. Media shares were active after a Senate committee yesterday voted narrowly in favor of a new radio and television law that is expected to benefit Televisa and TV Azteca, as broadcast signals are switched to digital from analog. A vote by the full Senate is expected tomorrow.

Also, copper miner Grupo Mexico was in focus, as a strike at the company’s La Caridad mine entered its sixth day today.

Argentine issues edged higher, helped by strength in shares of Banco Macro Bansud, following the recent debut of its American Depositary Receipts in New York. Steel shares also managed solid gains.

In economic news, Argentine supermarket sales rose 0.3% in February from January and were up 6.7% on the year, while shopping center sales dipped 0.6% on the month and rose 17.4% on the year.

Thomson Financial – www.thomsonfinancial.com

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