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Suspense in Brazil Over Interest Rates

Latin American equities put in a mixed performance, after stumbling significantly last week on global economic concerns. Traders are sure to closely monitor U.S. inflation indicators in the form of the PPI and CPI, due out tomorrow and Wednesday, respectively.

Brazilian shares posted a modest rebound, ahead of the central bank’s interest rate decision on Wednesday, while Mexican shares tanked, deepening recent declines. Meanwhile, Argentine issues turned higher, on improved relations between the country and the IMF.


Brazil’s benchmark Bovespa Index advanced 221.19 points, or 0.90%, while Mexico’s benchmark Bolsa Index negated 202.71 points, or 1.70%. Argentina’s Merval Index rebounded 31.42 points, or 2.46%.


Brazilian shares posted gains ahead of this Wednesday’s rate decision. The central bank will decide whether to raise the Selic interest rate for the eighth-consecutive month.


Most market pundits believe the bank will hold rates at 19.25%. Separately, the central bank’s weekly market survey showed expectations for the IPCA inflation index rising to 6.10% through the end of the year from a prior outlook of 6.04%.


In corporate reports, aircraft manufacturer Embraer announced the sale of three passenger planes to Ecuador’s TAME Airlines.


Within the telecom group, late last Friday, Brasil Telecom Participações President Carla Cico said she is not set to resign from the company, despite rumors to the contrary.


Earlier last week, federal police recommended that the president be indicted on conspiracy and invasion of privacy charges related to an investigation of Telecom Italia, a major shareholder of the Brazilian telecom firm.


Elsewhere, pulp and paper producer Votorantim Celulose e Papel posted first-quarter EBITDA of US$ 96 million, 9% below the US$ 106 million posted in the corresponding period a year ago, as export volumes dropped.


Meanwhile, Mexican shares continued to erode, as concerns about higher interest rates and slowing economic growth in the U.S. persist. In corporate news, state-owned firm Pemex said that it produced 3.25 million barrels of crude oil per day in March, down from 3.37 million b/d in March 2004. Pemex is one of the leading foreign suppliers of oil to the U.S.


Argentine issues finally moved higher, after investors cheered a perceived improvement in relations between the International Monetary Fund and Argentina.


IMF Managing Director Rodrigo de Rato and Argentine Economy Minister Roberto Lavagna met yesterday to discuss the holdout creditors from the substantial debt restructuring, among other items.


Argentine daily Clarin reported that Rato said a “realistic strategy” to resolve the approximate US$ 25 billion in outstanding debts owed to the holdout creditors is in the works.


The news followed a more resilient stance by the Argentine government on Saturday, after the Group of Seven leading industrial nations urged Argentina to negotiate with the investors who rejected the country’s debt exchange.


Roberto Lavagna replied, “The government of the Republic of Argentina plainly reiterates that it will not reopen the public debt swap that ended successfully on February 25.”


Turning to economic reports, Argentine industrial production rose 8.7% in March from a year ago, well ahead of economist expectations. Production advanced from a 4.9% reading in February. Capacity utilization rose to 71.1% in March, above February’s 69% reading.


Thomson Financial Corporate Group
www.thomsonfinancial.com


PRNewswire

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