Low Inflation Gets Brazil Market Bullish

Brazilian stocks closed with solid gains on a modest inflation reading. Brazil’s benchmark Bovespa Index jumped 255.30 points, or 1.00%. Stocks managed to brush off morning weakness to end firmly higher, after the central bank decided after yesterday’s close to raise the key Selic interest rate to 17.75%, a 50-basis point increase.

Investors are now wondering whether the central bank will continue to hike rates in 2005. Minutes from the monetary policy meeting will be released next week.


Brazil’s IGP-M inflation index, which closely tracks wholesale prices, rose 0.63% in the 20 days ended December. 10 compared with a 0.60% rise in the 20 days ended Nov. 10, the private Getúlio Vargas Foundation think tank said today. Analysts were expecting an increase of 0.75%.


Meanwhile, the Brazilian government has confirmed it will maintain its primary budget surplus target of 4.25% of gross domestic product for 2005, according to a letter to the International Monetary Fund. The country also said it remained committed to achieving the inflation targets established in June.


Separately, the IMF completed its review of Brazil’s economic reform program late yesterday and increased the size of the government’s IMF credit line by US$1.4 billion.


Turning to corporate news, Companhia Brasileira de Distribuição said late yesterday that its same-store sales rose 4.4% on the year in November, slowing from the double-digit year-on-year growth seen over the past few months. Total gross sales rose 18% to 1.29 billion reals, while net sales increased 15%.


Meanwhile, Varig, the troubled airline, fell after running up recently on optimism about a government bailout. Now, however, many investors doubt that the much-rumored bailout is really on the way.


Thomson Financial Corporate Group
www.thomsonfinancial.com


PRNewswire

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