Monetary Easing in US Brings Record Day to Brazil’s Market

Latin American stocks powered higher, led by Brazilian shares, on indications the U.S. Federal Reserve is close to ending its interest-rate hiking campaign.

Brazil’s Bovespa Index surged 1109.99 points, or 2.89%, while Mexico’s benchmark Bolsa Index advanced 187.73 points, or 0.96%, and Argentina’s Merval Index jumped 26.33 points, or 1.39%.

Brazilian stocks rallied, with the Bovespa surpassing an all-time high, as investors were cheered by tame minutes from the U.S. Federal Reserve’s last interest-rate meeting as well as a drop in U.S. Treasury yields.

The minutes suggested that the Fed’s current cycle of monetary tightening is nearing an end. "Most [FOMC] members thought that the end of the tightening process was likely to be near and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy," the summary of the March 27-28 meeting said.

Higher U.S. interest rates tend to divert investment flows away from emerging markets like Brazil.

Meanwhile, investors also remained optimistic about the local interest- \rate outlook. Brazil’s central bank is widely expected to extend its run of interest rate cuts at tomorrow’s policy meeting with a reduction of 75 basis points to the Selic rate. Interest rates currently stand at a lofty 16.5%.

Adding to positive sentiment, Brazil’s Planning Ministry indicated in budget guidelines that it expects Brazil’s primary budget surplus to be maintained at 4.25% of gross domestic production through 2009 amid a continuation of austere fiscal policies.

In corporate news, oil giant Petrobras said that its board approved the conversion of all shares of its petrochemicals unit Petroquisa into Petrobras shares.

Petrobras already owns 99% of Petroquisa’s shares. Separately, a major investment bank raised its year-end price target for Petrobras to US$ 105 from US$ 98, "on the back of strong refining margins expected in 1H06."

Elsewhere, Mexican shares jumped, in line with regional equities, on optimism about U.S. interest rates. Mexico’s bolsa was also supported by continued hopes for a strong first-quarter earnings season, which is expected to gain steam this week and next with a flood of quarterly reports.

Among individual shares, mining company Grupo Mexico was in focus as a nearly month-long strike continued at its La Caridad copper mine. Last week, the company declared force majeure on copper shipments due to the strike.

The company said yesterday that it can meet its April commitments, but could have problems next month if the walkouts persist. Grupo Mexico also said yesterday that a continued strike at its zinc mine in Zacatecas may prevent it from meeting orders for refined zinc next month.

Argentine issues followed Latin American markets higher on expectations for a near-term end to the U.S. monetary tightening cycle. Lending additional support, a monthly survey released by the Argentine central bank showed that economists expect robust economic growth in February.

According to the survey, the median forecast among economists is for Argentina’s economic activity to have grown 8.3% in February from a year earlier. While that is down from January’s 9.1% growth, it still suggests continued economic strength.

Thomson Financial – www.thomsonfinancial.com

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