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Good Political and Economic News in Brazil Helps Drag Market Up

Latin American markets were mixed, with Brazilian stocks edging up amid conflicting signals on the outlook for Brazilian interest rates. Meanwhile, Mexican shares dropped, as investors continued taking profits.

Trading in the region was also impacted by a decline in the U.S. market on higher-than-expected U.S. hourly wage data that fueled concerns the U.S. Federal Reserve will continue raising interest rates longer than previously expected.


Brazil’s benchmark Bovespa Index added 48.02 points, or 0.18%, while Mexico’s benchmark Bolsa Index fell 149.08 points, or 1.02%. Argentina’s Merval Index dipped 8.95 points, or 0.59%.


Brazilian shares were mixed to higher, as investors weighed the implications of robust industrial production data. Brazil’s industrial production climbed 1.6% in June from May and jumped 6.3% from a year earlier.


The report was seen as a double-edged sword, signaling that the economy is growing, but dampening hopes the central bank will soon cut sky-high interest rates, which are currently at 19.75%.


Helping bolster expectations for a rate cut, however, President Luiz Inácio Lula da Silva indicated late yesterday that he would pressure the central bank to lower rates. The bank held interest rates steady at its June and July meetings after raising rates for nine straight months.


In other economic news, Central Bank President Henrique Meirelles said the government continues to forecast 2005 economic growth of 3.4%, according to the Agência Estado news agency.


He noted that economic growth data remains strong, while inflation appears to be moving towards targets of 5.1% set for this year and 4.5% set for 2006. “We’re going through a moment of a combination of extremely favorable factors,” he said.


Some recent good news on the political front helped to buoy Brazilian issues. Yesterday, Congressman Roberto Jefferson retracted his previous statements that suggested President Lula could be connected to alleged campaign finance misconduct.


He instead pointed to former chief-of-staff José Dirceu and other Worker’s Party members as having been involved in the scandal.


Elsewhere, Mexican stocks sank as investors continued taking profits, following a recent string of record highs for the country’s key index that culminated with Tuesday’s closing high of 14,678.


Shares were also undermined by weakness in the U.S. market amid uncertainty over the outlook for U.S. interest rates following data showing a rise in hourly wages.


Among individual shares, mining company Grupo Mexico dipped ahead of an anticipated strike next week by workers at its largest mine. Workers have already staged a strike at the company’s Asarco unit in the U.S.


Argentine issues also declined, as investors took some profits following yesterday’s gains while awaiting a flurry of earnings reports due out next week.


In research notes, Bear Stearns said shares of Argentine steel maker Tenaris are in “the late innings” of their rally. However, the bank boosted its year-end price target on the shares to US$ 115 from US$ 84.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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