US Inflation Once Again Brings Down Brazilian Stocks

Brazilian stocks retreated, extending recent losses, on continued worries about rising U.S. inflation and interest rates. Argentine shares were further pressured by disappointing local economic data.

Brazil’s Bovespa Index dropped 483.53 points, or 1.26%. Mexico’s benchmark Bolsa Index fell 44.84 points, or 0.22%, while Argentina’s Merval Index lost 29.78 points, or 1.77%.

Brazilian stocks continued to sink still concerned about U.S. inflation and interest rates following data showing a bigger-than-expected rise in U.S. consumer prices in April.

Investors fear that recent signs of inflationary pressure will lead the U.S. Federal Reserve to continue its tightening cycle longer than expected, potentially diverting investment flows away from emerging markets like Brazil.

Closer to home, the Fipe research foundation reported that consumer prices in São Paulo city gained 0.08% in the four weeks ended May 15. That was the same increase seen in the four weeks ended May 7.

On the corporate front, CVRD said it reached an agreement on 2006 iron ore price contracts with South Korean steel maker Posco. Posco agreed to a 19% hike in iron ore fines and a 3.0% decline in iron ore pellet prices. That followed similar agreements with other steelmakers in recent days.

Elsewhere, Mexican shares dipped, as investors continued to fret over the U.S. inflation and interest-rate outlooks. Helping to limit losses, however, a Mexican retailers association, Antad, said sales at its member establishments surged 19.2% in April. Same-store sales rose 9.1% from April 2005.

In other news, engineering and construction firm Empresas ICA won a US$ 105 million contract to upgrade and maintain a highway between Queretaro and Irapuato in central Mexico, the Communications and Transport Ministry said.

Argentine issues dropped amid lackluster local economic data. The national statistics agency (INDEC) said its index of economic activity for March inched up 0.1% from February and rose 7.7% from March 2005. The year-over-year result was well below economists’ forecasts of 8.6%.

Meanwhile, INDEC confirmed that Argentina’s first-quarter unemployment rate was 11.4%, up sharply from 10.1% in the fourth quarter.

Thomson Financial – www.thomsonfinancial.com

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