Inflation Up North Gives Brazilian Stocks the Chills

Latin American and Brazilian shares in particular were down on continued worries about U.S. inflation and interest rates. Brazilian markets closed early for Brazil’s World Cup match against Croatia, which ended with an 1 to 0 advantage for Brazil and will be closed Thursday for the Corpus Christi holiday.

Brazil’s Bovespa Index plunged 706.91 points, or 2.11%. Mexico’s benchmark Bolsa index fell 333.12 points, or 1.96%, while Argentina’s Merval Index lost 14.91 points, or 0.99%.

Brazilian shares were down on higher May U.S. producer price index data that could lead to a continuation of the U.S. monetary tightening cycle currently draining funds from emerging markets. U.S. producer prices, a closely watched measure of wholesale inflation, rose 0.2% in May, while core prices, which exclude food and energy, rose 0.3%.

Meanwhile, Brazilian inflation is also rearing its head. The Getúlio Vargas Foundation IGP-M index showed four-week inflation of 0.27% through early June, up from 0.21% for the period through early May. The combination of domestic inflation and emerging market worries could cause the Brazilian Central Bank to halt its recent policy of monetary loosening.

Elsewhere, Mexican stocks also closed lower for the seventh consecutive session, spurred by investors pulling money out of emerging markets. Concerns persist that rising interest rates around the world will hinder market liquidity. Meanwhile, investors are also awaiting the presidential election in Mexico, scheduled to take place on July 2.

In economic headlines, Mexico’s April industrial production slipped versus the year-ago month as the Easter holiday lowered the number of working days. Production fell 0.8% from April 2005, below the median estimate of a 2.3% increase in a Dow Jones Newswires survey of economists.

In non-annualized, seasonally adjusted terms, output was up by 1.74% versus March. Industrial production for the first four months of the year was up 5% versus the year-ago period.

Argentine issues dropped today as well. Trading was volatile, as market titan Ternaries rallied, which helped ease broader market losses. Ternaries jumped on word it intends to buy U.S.-based Maverick Tube for about US $3.19 billion in cash.

Thomson Financial – www.thomsonfinancial.com

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