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Brazilian Market Rebounds Despite Fears That Lula Might Be Tainted by Corruption

Latin American shares mostly rebounded, led by Brazil’s return to positive territory, following a sharp decline in yesterday’s trading, while Argentine issues also advanced.

Mexican issues posted modest declines on the day. Latin America’s corporate earnings season is squarely in focus.


Brazil’s benchmark Bovespa Index rebounded 337.68 points, or 1.38%, while Mexico’s benchmark Bolsa Index fell 67.51 points, or 0.48%. Argentina’s Merval Index jumped 25.72 points, or 1.77%.


Brazilian issues rebounded modestly from a steep sell-off yesterday. Investors are becoming increasingly concerned that a key witness in the country’s cash-for-votes scandal, Marcos Valério de Souza, may have evidence linking President Luiz Inácio Lula da Silva and Finance Minister Antonio Palocci to the bribery allegations.


Souza is scheduled to testify before Congress later this week. Meanwhile, today’s congressional testimony from Souza’s wife Renilda provided no new evidence.


Meanwhile, earning results continue to pour in across the region. Telephone company Embratel said that its second-quarter net profit surged to 93.6 million reais from a loss of 64.2 million reais in the corresponding period a year ago.


Favorable exchange rates helped boost the latest results. Net revenue advanced from a year ago, but still landed beneath the mean analyst estimate.


Elsewhere, mobile phone operator TIM said that its second-quarter net profit jumped to 73.1 million reais from 40.4 million reais a year ago, as revenues climbed to 719.4 million reais from 601.3 million reais. EBITDA advanced to 210.7 million reais from 176.1 million reais.


In other corporate reports, state-run oil firm Petrobras announced that it sent two letters of intent to rent two oil platforms from Japan’s Modec Inc. The contracts could be worth up to US$ 1.23 billion.


Mexican shares fell for a second-straight session, with profit taking likely still a factor after the IPC index repeatedly hit fresh highs last week. Financial releases continue to dominate headlines. Also, U.S. consumer confidence fell to a disappointing 103.2 in July. Mexico sends nearly 90% of its exports to the U.S.


Homebuilder Geo posted a 38% leap in its second-quarter net profit to 227.8 million pesos on revenues of 2.25 billion pesos. EBITDA leapt 34% to 566.6 million pesos from a year ago.


Glass maker Vitro SA said that higher sales helped boost its second-quarter net profit to 189.2 million pesos, reversing a year-earlier loss of 509.2 million pesos. Sales edged up to 6.74 billion pesos from 6.60 billion pesos.


Also, Grupo Elektra reported a second-quarter net profit of 351 million pesos, up from 262 million pesos a year ago. Sales jumped to 7.65 billion pesos from 6.46 billion pesos, while operating profit advanced to 836 million pesos from 749 million pesos.


In research reports, a major investment bank raised its price target for Asur to US$ 40 from US$ 33.90 as its outlook beyond 2005 becomes more upbeat.


Separately, another large investment house downgraded Inbursa to “peer perform” from “outperform,” as it expects the firm’s profitability to fall in the second quarter due to losses on interest rate swaps. The broker also cited the firm’s strong stock price for the downgrade.


Argentine shares recovered from losses posted during yesterday’s session. The national statistics agency, INDEC, said that industrial production declined a seasonally adjusted 0.5% in June from May. Meanwhile, output was up 6.4% on the year.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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