Brazilian Stocks Mirrors US Market and Fall

Latin American stocks were mixed, with Brazilian stocks dipping, in line with the U.S. market, amid concerns about a recent surge in global oil prices. Meanwhile, Mexican shares edged up amid tame local inflation data.

Brazil’s Bovespa Index shed 23.29 points, or 0.06%, while Mexico’s benchmark Bolsa Index added 24.07 points, or 0.12%, and Argentina’s Merval Index jumped 24.34 points, or 1.27%.

Brazilian stocks were little changed, as concerns about the inflationary impact of a recent spike in global oil prices weighed in against continued optimism about the local economy and interest rates. Last Friday, oil prices hit a fresh record high above US$ 75 a barrel amid mounting tensions over Iran’s nuclear program.

Adding to recent optimism about the local economy, the Brazilian central bank’s latest weekly market survey showed that analysts and economists lowered their forecasts for 2006 inflation as measured by the official IPCA index.

It was the fourth consecutive week that the survey showed declining inflation expectations. Meanwhile, analysts maintained their year-end forecasts for gross domestic product and the benchmark Selic interest rate.

In corporate news, a major investment bank raised its price target for the shares of oil giant Petrobras to US$ 138 from US$ 125.

Meanwhile, another bank shuffled its model equity portfolio for Brazil, adding airline Gol Linhas Aereas Inteligentes SA and wireless carrier Vivo Participações SA.  The bank also cut Banco Itaú Holdings Financeira SA from its focus list and replaced it with Banco do Brasil SA.

As for Brazilian equities overall, the bank reiterated its "overweight" recommendation, saying, "External fundamentals remain strong, domestic economic fundamentals are improving, political risk remains manageable, and local participation in the equity market may increase as interest rates gradually decline over 2006."

Long steel firm Gerdau SA said it expects iron-ore prices to rise between 10% and 20% when contract negotiations are completed with global iron-ore miners.

Mexican shares jumped on the session, hitting their fourth-consecutive record. The Bank of Mexico took economists by surprise this past Friday when it reduced the overnight lending rate by 25 basis points to 7%. Meanwhile, Mexican retailers continued to benefit from Friday’s positive sales report for the month of February.

In today’s economic headlines, the Bank of Mexico said that the Consumer Price Index advanced 0.03% during the first two weeks of April, below analyst expectations. The latest result reduced the annual rate to 3.37% from 3.41% at the end of March.

Turning to corporate earnings, home construction firm Geo posted a 25% increase in its first-quarter net profits to 227.7 million pesos from 182.4 million pesos a year ago. Sales jumped 19% to 2.25 billion pesos, while Ebitda advanced to 313.3 million pesos.

Meanwhile, ICA announced that it signed four construction contracts totaling 1.32 billion pesos. The engineering and construction firm said the projects’ execution times range from six months to a little more than two years.

Within the banking group, the International Finance Corp., the private sector arm of the World Bank, said it may invest up to US$ 70 million in Banco del Bajio for a 15% stake.

Argentine issues jumped alongside gains in Mexico. Standard & Poor’s Ratings Services upgraded the global foreign and local currency ratings on the Republic of Argentina, and lifted its foreign and local currency corporate credit ratings on several local entities.

Thomson Financial – www.thomsonfinancial.com

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