Steep Fall in Commodity Prices Sends Brazilian Stocks Deep into Red

Brazilian stocks  plunged alongside a broader tumble amid emerging markets, as investors  continue to ponder the future direction of U.S. interest rates. 

Continued weakness in commodity prices pressured Brazil and Mexico alike, as both countries are major commodities exporters.

Brazil’s Bovespa Index tumbled 1,235.94 points, or 3.28%. Mexico’s  benchmark Bolsa Index receded 812.85 points, or 4.03%, while Argentina’s  Merval Index negated 64.78 points, or 3.91%.

Brazilian stocks plunged on the day, adding significantly to last  Friday’s milder decline. Investors exited emerging markets, partly due to  U.S. interest rate concerns and steep falls in commodity prices.

On the economic front, the Brazilian Ministry of Trade and Development said that  Brazil posted a US$ 433 million trade surplus in the third week of May,  bringing the year-to-date surplus to US$ 14.822 billion.

Turning to corporate reports, local business daily Valor Econômico said  that airline TAM might buy planes from local manufacturer Embraer. A TAM official commented that the firm has not yet made a decision. The  airline is in the market to replace its fleet of Fokker-100s.

State-run oil firm Petrobras will raise its oil output in 2007 by  560,000 barrels a day, according to Chief Executive Sergio Gabrielli.

Mining firm CVRD said late last Friday, May 19, that it reached an agreement on  2006 iron ore price contracts with Mittal Steel, in which that firm  agreed to a 19% increase for iron ore fines.

Elsewhere, Standard & Poor’s  Ratings Services raised its long-term corporate credit rating on CVRD,  and removed the rating from CreditWatch.

S&P said the firm’s credit  profile "is strengthened by improved operating and financial conditions in  its home country Brazil, with positive implications particularly on its  financial flexibility."

Mexican shares followed Brazil deep into the red, as an exodus by  investors out of emerging markets pressured global markets. Investors had  little else to focus on amid a dearth of local economic and corporate  reports.

Argentina was also not able to escape the broader regional downturn,  despite an upgrade for a market heavyweight. A major investment bank  raised its rating for Tenaris to "buy" from "neutral" due to a recent  decline in the steel pipe maker’s share price.

Also, the investment bank  noted that Tenaris’ earnings and outlook should continue to receive  support from a strong oil exploration up-cycle.

Thomson Financial – www.thomsonfinancial.com

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