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Brazil Announces Cut of Red Tape and Global Investors Get Bullish

Latin American markets were mostly higher, thanks to upbeat earnings reports in Brazil, optimism about the economy and waning inflation in Argentina.

Brazil’s Bovespa Index jumped 200.26 points, or 0.65%. Mexico’s benchmark Bolsa Index lost 98.44 points, or 0.62%, while Argentina’s Merval Index added 44.58 points, or 2.72%.

Brazilian equities posted strong gains, due in part to strong earnings results so far in the third quarter, optimism about the economy and enthusiasm from global investors after the Federal Treasury stated late yesterday that it will make it easier and faster for overseas investors to obtain authorization and tax documentation to operate in Brazil.

In corporate results, airline TAM posted third-quarter net profits of 93.3 million reais, up from 34.5 million reais a year ago, thanks to an increase in market share. Net sales jumped 24%.

In staples, brewer AmBev’s third-quarter net profits more than tripled from a year ago, reaching 399.1 million reais, thanks to higher sales volume. Sales increased 32.5%.

On the downside, ALL Logistics posted third-quarter profits of 44 million reais, down slightly from last year’s 47.6 million reais, due to currency translation effects.

Of note, in deals, a unit of Votorantim Metais purchased a US$ 60.7 million interest in Peruvian base metals miner Compania Minera Milpo.

Separately, utility Cemig confirmed its interest in bidding for Rio de Janeiro state energy distributor Light, with Banco Itaú hired as a consultant to evaluate the deal.

The latter bank was also in the news this week after America Online Latin America announced it was seeking bankruptcy court approval to end marketing agreements with Itaú. The bank will pay AOL US$ 3.7 million in return for releasing the bank from agreements.

Meanwhile, Mexican shares declined anew, possibly on profit taking, amid little news locally. In the U.S., productivity galloped at a rate of 4.1% from July to September, up from 2.1% in the previous quarter.

Separately, in congressional testimony, Federal Reserve Chairman Alan Greenspan, reported that despite the hurricanes, "economic fundamentals remain firm, and the U.S. economy appears to retain important forward momentum."

Further in "the States," the ISM non-manufacturing index moved to a reading of 60.0, from 53.3 in September. The forecast for October was 57.0. Also, U.S. factory orders declined 1.7% in September from being up 2.9% in August. Analysts had expected a decrease of only 1.4% for September.

In domestic research of note, a major investment bank cut Mexico’s debt rating to "underweight" from "neutral," citing deteriorating country fundamentals.

In other news, Mexican businessman Carlos Slim announced plans to invest US$400 million next year into telecom firms operating in Argentina, Telefonos de Mexico and America Movil’s CTI.

Also of note, on the corporate front, Cemex and France’s Lafarge signed a letter of intent to terminate their joint venture in Spain and Portugal. A major investment bank noted it considered the deal to be neutral for Cemex.

Elsewhere, Argentine stocks rose, in line with regional counterparts, and thanks to pleasing inflation data. In October, the consumer price index stood at 0.8%, in line with expectations, and well below the 1.2% registered the prior month.

In company results, electricity transporter Transener reported a nine- month net profit of 630.4 million pesos, versus a year-ago loss of 85.6 million pesos the prior year.

Thomson Financial Corporate Group – www.thomsonfinancial.com

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