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In Brazil All Eyes Are on the Central Bank, Hoping for Interest Cuts

Latin American markets drifted lower, amid a dearth of catalysts, and as global equities had a mixed performance as well. In Brazil, investors are mainly focused Wednesday’s central bank meeting.

Brazil’s benchmark Bovespa Index fell 221.43 points, or 0.76%, while Mexico’s benchmark Bolsa Index dropped 22.71 points, or 0.15%. Argentina’s Merval Index shed 24.07 points, or 1.49%.


Brazilian shares declined on profit-taking, after strong gains recently. Investors were cautious, anticipating an interest rate cut later this week from the central bank, but worrying about the impact on the inflation outlook of a price hike at Petrobras.


On the political front, the opposition unveiled plans to file a request to open impeachment proceedings against speaker Severino Cavalcanti in the lower house ethics committee, amid accusations of bribery.


Meanwhile, over the weekend, press reports alleged that the president of steel maker Usiminas, Rinaldo Campos Soares, has made illegal campaign donations.


In economic news, the president of government-controlled Brazilian Development Bank anticipates GDP growth of 4% in 2005 and 5% next year. In current data, the trade surplus amounted to US$ 854 million in the September 5- 11 period, as exports totaled US$ 1.87 billion and imports US$ 1.02 billion.


Separately, the consumer price index in Sao Paulo dropped 0.11% in the week ended September 7, versus the greater decline of 0.20% in August, and expectations for a decrease between 0.15% and 0.30%.


In corporate developments, Petrobras announced price hikes at refineries of 10% for gasoline and 12% for diesel, generating some concerns about inflation.


Elsewhere, airline Varig presented a new business plan to a bankruptcy court, including lay-offs of 13% of its workforce by the end of 2006 and the sale of its logistics arm, among other measures.


In research, an investment bank cut TV operator NET Serviços de Comunicação SA to “neutral” from “buy,” seeing little upside potential in the stock.


Mexican issues, meanwhile, ended mixed to lower, due to soft economic data. U.S. counterparts put up a lukewarm performance as well.


Of note, President Fox unveiled plans to propose a change in the constitution to allow private companies to explore and produce non-associated natural gas in Mexico, in a bid to reduce the country’s dependence on natural gas imports from the U.S.


In economic indicators, industrial output dropped 1.1% in July from a year ago, but inched up 0.22% from June. Analysts had predicted a decline of 1.7%.


In corporate transactions, Grupo Bimbo launched an offer to buy US$ 134.9 million in defaulted bonds issued by its Argentine unit, Compania de Alimentos Fargo SA.


Argentine stocks eased lower, in light volume, amid few developments. The Merval had recently flirted with record levels last week.


In analyst actions, an investment bank lowered its rating of Argentina’s external debt to “market weight” from “overweight,” while also cutting Peru’s external debt to “underweight” from “market weight.”


In policy developments, the Argentine government raised its minimum pensions for the second time in less than three months, a move that will cost it 400 million pesos for the rest of the year and that generated criticism that it was enacted with the October congressional elections in mind.


Thomson Financial Corporate Group – www.thomsonfinancial.com

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