Investors Keep Fleeing in Droves from Brazil

Latin American stocks were down sharply today on continued fears that U.S. inflation and interest rates could be on the rise. Rate uncertainty has been driving investors away from many emerging markets and into U.S. stocks.

Brazil’s Bovespa Index tumbled 1732.64 points, or 4.54%. Mexico’s benchmark Bolsa Index sank 659.20 points, or 3.38%, while Argentina’s Merval Index dropped 59.97 points, or 3.53%.

In addition to inflation and interest-rate anxieties in the States, today’s personnel change at the U.S. Treasury also stoked investor unease: President Bush announced that Treasury Secretary John Snow has resigned and will be replaced by Goldman Sachs Group Chairman and Chief Executive Henry M. Paulson Jr.

Closer to home, Brazil’s Central Bank Monetary Policy Committee will meet Wednesday, May 31, when it is expected to cut the Selic base interest rate for the eighth consecutive meeting. First-quarter gross domestic product figures will also be released the same day.

On the corporate front, Brazilian miner Companhia Vale do Rio Doce, or CVRD, declined after China’s official Xinhua news agency said local steelmakers rejected a 19% hike in iron ore prices.

According to Xinhua, Chinese steelmakers rejected the benchmark 19% price increase and will continue negotiations with iron ore suppliers BHP Billiton, CVRD and Rio Tinto in June. The three companies account for 70% of the seaborne iron ore market.

Elsewhere, after recovering last Thursday and Friday from a string of losses, Mexican stocks fell today, May 30. Local bonds also saw renewed selling.

Mexican interest rates rose across the board at the central bank’s primary auction amid renewed selling of stocks and bonds in regional markets. The yield on benchmark 28-day Treasury bills, or Cetes, eked out a single-basis-point gain to 7.02%, after the Bank of Mexico left the overnight rate unchanged at 7% at last Friday’s monetary policy meeting, when it reiterated that it sees no room for further monetary loosening right now.

Among the day’s equity movers, Mexican telecom firms led today’s decline into the red, with the shares of wireless phone company America Movil and fixed-line phone company Telmex ending lower.

Copper miner Grupo Mexico’s B shares dropped, and cement maker Cemex CPO shares finished lower as well. Meanwhile, Mexico’s largest retailer, Wal-Mart de Mexico, and banking group Banorte also ended down.

Mexico’s peso declined to its weakest level in more than a year today as investors returned from a long weekend to continue selling off emerging market securities. A reduction in exposure to emerging market assets amid expectations of higher U.S. interest rates has contributed to the peso’s recent weakening.

In Argentina, stocks slid after a two-session rebound, as the local bourse followed regional and world markets lower.

Thomson Financial – www.thomsonfinancial.com

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