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Better Yields from US Treasury Lower Brazilian Shares

Brazil’s and Latin America’s shares fell, with Brazilian and Mexican equities pulling back from record closing highs established in the prior session. Still, Argentine stocks continued to firm amid low volume in the wake of the country’s debt swap.

Brazil’s benchmark Bovespa Index shed 434.22 points, or 1.47%, while Mexico’s benchmark Bolsa Index declined 124.89 points, or 0.90%. Argentina’s Merval Index added 6.07 points, or 0.38%.

Brazilian shares fell back from an all-time closing high yesterday as U.S. Treasury yields rose, drawing investment away from emerging markets.

Petrobras ADRs came under pressure on an analyst’s increased estimate for the average price of international oil for this year and next. The higher prices could prevent Petrobras from strengthening its margins as fast as the analyst had expected, it noted.

In earnings news, Brazilian mobile phone company Telemig Celular Participações posted a fourth-quarter profit that leapt nearly four-fold to 31.5 million reais from 8.1 million reais in the year-ago period, due to what it called an aggressive campaign to recruit new customers.

Telemig, which serves the nation’s second-largest state of Minas Gerais, said its 2004 net earnings reached 159.6 million reais, up from 148.1 million reais in 2003.

Brazil’s largest combined power generator and distributor, Cemig, announced that its net income gained 17% to 450.2 million reais in the fourth quarter from the corresponding period a year prior. However, that profit fell short of some analyst estimates, causing the stock to fall.

Also, Gol Linhas Aéreas Inteligentes stated that its fourth-quarter net profit jumped 93% to 123.9 million reais from the year before, as it added flights, packed more passengers into its planes and lowered aircraft rental costs with the help of the weaker U.S. dollar.

However, Gol executives warned that margins may come under pressure in 2005 as the low cost carrier plans aggressive expansion.

Elsewhere, Mexican issues crumbled, yielding ground after finishing at a record high yesterday. Movement in U.S. shares continued to dictate direction, with Wall Street eroding on higher crude oil prices. However, stronger oil prices are somewhat positive for Mexico, which is a major crude exporter.

Looking at individual stocks, shares of Asur fell. The Mexican government sold its remaining 11% stake in the airport operator via a secondary offering, completing the privatization started in 1998.

Asur reported that 3,263 investors participated in the offering of 33.3 million class B shares at 33.50 pesos each, for a total value of 1.11 billion pesos.

Meanwhile, Argentine stocks firmed in another low-volume session, as the focus shifts from the government’s US$ 103 billion debt restructuring toward discussions with the International Monetary Fund.

This week, senior officials from the IMF are meeting with Economy Minister Roberto Lavagna in Washington, marking the start of talks to revive a funding arrangement that stalled in mid-2004 and was then put on hold until the completion of Argentina’s debt swap.

Preliminary data from the six-week debt restructuring showed 76.07% approval from bondholders, but the IMF has made no pronouncement on whether it would be pleased with this result.

Analysts note that the issue is the IMF’s possible discomfort with the presence of US$ 25 billion in “holdout” claims that the government has vowed to ignore.

Additionally key will be the Argentine government’s negotiations with public utilities, which the IMF is eager to see resolved in a way that puts an end to a three-year rate freeze.

The government caught utilities off guard Monday when it published announcements of public hearing dates for new contractual agreements with the utilities. The firms say that they have not reached an agreement with the government from which such contracts can be drawn.

Thomson Financial Corporate Group



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