Brazilian Market Keeps On Losing Ground on Fears of Rising US Inflation

Latin American stocks were mixed to lower, with Brazilian and Mexican shares sinking on continued worries about rising interest rates in developed countries, such as the U.S. Bucking the downtrend, however, Argentine issues managed solid gains.

Brazil’s Bovespa Index tumbled 386.92 points, or 1.06%. Mexico’s benchmark Bolsa Index plunged 284.46 points, or 1.47%, while Argentina’s Merval Index jumped 26.46 points, or 1.66%.

Brazilian stocks dropped, extending recent losses, on continued concerns about rising U.S. inflation and interest rates amid a jump in oil prices.

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.

In local news, mining giant Companhia Vale do Rio Doce said it reached an agreement on 2006 iron ore price contracts with Arcelor. Under the agreement, iron ore fines will be raised by 19%. CVRD reached a series of similar price accords with other steelmakers last week.

Meanwhile, a major investment bank upgraded American Depositary Shares in telecom carrier Tim Participações to "outperform" from "peer perform" following a recent share price correction.

In other analyst actions, another investment bank reshuffled its Latin America equities model portfolio, dropping Brazilian logistics firm ALL in favor of airline Tam. The bank also cut Chilean fixed-line carrier CTC, and raised its exposure to seamless steel pipemaker Tenaris, which is owned by Techint.

Elsewhere, Mexican shares sank on continued uncertainty over the outlook for U.S. interest rates. In local economic news, the Finance Ministry said Mexico posted a US$ 464 million trade surplus in April as exports rose 13.9% to US$ 19. 80 billion, while imports grew just 7.3% to US$ 19. 33 billion.

On the corporate front, a major investment raised its price target for bottler Femsa to US$ 1 22 on a "dramatically improved" outlook for Mexico’s domestic beer market.

Meanwhile, the bank also raised its recommendation on shares of tortilla maker Gruma SA to "buy" from "neutral," citing valuation.

Broadcaster TV Azteca said it made cash distributions to shareholders of US$ 68 million, or $0.02 per CPO share. The payout was part of the US$ 90 million approved for 2006 at shareholder meetings in February and April.

Argentine issues gained ground, bucking the region’s downtrend, in a quiet news day for the local market. Among the day’s few headlines, an influential investment bank raised its exposure to seamless steel pipemaker Tenaris, saying the recent plunge in the company’s shares has brought "valuations to more attractive levels."

Thomson Financial – www.thomsonfinancial.com

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