Brazilian Airlines TAM and Gol Stocks Sink Together with Bankrupt Varig

Latin American stocks were mixed, with Brazilian shares in a slump, Mexico slightly higher and Argentine shares flat, as investors await clues about the prospects for interest rates following next week’s Federal Reserve’s FOMC policy meeting.

Brazil’s Bovespa Index declined 229.87 points, or 0.67%. Mexico’s benchmark Bolsa Index edged up 32.19 points, or 0.18%, while Argentina’s Merval Index receded 1.67 points, or 0.11%.

Brazilian stocks fell today, June 22, as investors took part in some profit taking following yesterday’s surge. Meanwhile, trading was cut short by the Brazilian national team’s game versus Japan at the World Cup.

In economic news, the Getúlio Vargas Foundation reported that the country’s General Price Index, or IGP-M, advanced 0.56% in the 10 days through June 20, compared with a rise of 0.34% for the same period last month. The latest results were in line with analyst expectations.

On the corporate front, mining giant Companhia Vale do Rio Doce advanced. Late Wednesday, the company said it had reached a deal with Chinese steelmakers to raise iron ore prices by 19% in 2006 contracts. The firm also announced a share buyback program in which the firm will buy up to 5% of its outstanding preferred shares.

Airline stocks also fell across the board, with low-cost carrier Gol and rival TAM, the country’s largest airline, sinking by the close. The companies’ shares decreased on reports that Gol and TAM may not benefit as much as expected from the demise of flagship airline Viação Aérea Rio-Grandense, or Varig.

The government may favor smaller rivals in the awarding of Varig’s old routes to increase competition, while the two airlines’ costs will likely rise as they take on passengers stranded by Varig’s possible liquidation.

Meanwhile, Brazilian grocer Companhia Brasileira de Distribuição, or CBD, the country’s largest supermarket chain, surged after a major investment bank upgraded the company’s shares to "Buy 2" from "Neutral 2." The brokerage said the "worst" of the company’s recent sales woes was already priced into the shares.

Elsewhere, Mexican stocks edged higher, bucking the broader negative trend elsewhere in Latin America and the U.S. In economic headlines, the Bank of Mexico announced that the Consumer Price Index rose 0.07% in the first half of June, less than what analysts has expected. Still, the annual rate moved back up to about 3.27% from 3% at the end of May.

In a report, a large investment bank said it was adopting a defensive position in Mexican shares on the possibility of leftist Andrés Manuel Lopez Obrador of the Democratic Revolution Party, or PRD, winning the July 2 presidential election. Separately, the bank said it switched out of homebuilder Urbi in favor of Wal-Mart de Mexico, the country’s biggest retailer.

Argentine stocks were little changed amid thin trading as investors mainly stuck to the sidelines. The benchmark Merval Index ended lower, while the broader General Index rose slightly. Volume remained relatively low.

In economic news, the National Statistics Agency, or Indec, said that the current account surplus arrived at US$ 1.1 79 billion, up from US$ 1 85 million in the first quarter of 2005.

Thomson Financial – www.thomsonfinancial.com

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