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Hopes for Lower Interest Heat Up Brazilian Market

Latin American stocks bounded higher, with Brazilian shares posting some of the region’s biggest gains, ahead of key inflation data due out tomorrow. Meanwhile, Mexican shares were boosted by upbeat industrial output data.

Brazil’s Bovespa Index surged 902.82 points, or 2.58%. Mexico’s benchmark Bolsa Index climbed 248.06 points, or 1.31%, while Argentina’s Merval Index jumped 33.26 points, 2.06%.

Brazilian stocks rallied following two straight sessions of losses, as investors resumed a buying spree that began in the first week of January on expectations for solid economic growth, tame inflation and further interest-rate declines in 2006.

In economic data, the Getúlio Vargas Foundation said that Brazil’s General Price Index, or IGP-M, rose 0.40% in the first 10 days of January, a higher rate than the 0.06% increase for the first 10 days of December. The figure was above economists’ forecasts, which ranged from 0.08% to 0.35% growth.

Meanwhile, Sao Paulo’s Fipe research institute said its consumer price index for São Paulo rose 0.46% in the four weeks ended January 7, versus an increase of 0.29% in December. Economists had predicted inflation between 0.33% and 0.45%.

Investors largely shrugged off the disappointing IGP-M and São Paulo CPI figures, instead looking ahead to the Brazilian Census Bureau’s release tomorrow of official inflation data for 2005.

Investors are hopeful the data will show inflation is tame, thereby supporting expectations the Brazilian central bank will cut interest rates further at its next meeting on January 18. Official 2005 inflation is expected to come in at about 5.7%, well within the government’s target range.

In corporate news, Petrobras said it will invest US$ 18 billion in exploration and production in the Santos basin, off Brazil’s southeast coast, over a 10- year period.

Separately, Petrobras said the government of Equatorial Guinea approved the company’s purchase of a 50% production stake in an oil exploration block.

Mining giant CVRD said bondholders accepted a tender offer to buy back US$ 176 million of a US$ 300 million bond issue. The operation will cost US$ 208 million.

Steel maker Gerdau said late yesterday that it has closed a deal to purchase Spanish specialty steel maker Sidenor. Gerdau, Spanish bank Santander and Sidenor executives paid 463.3 million euros for the company. Gerdau will have a 40% stake in the Spanish steel company.

Tele Norte Leste Participações’ chief financial officer Marcos Grodetzky said he will leave the company to pursue other career opportunities.

Elsewhere, Mexican shares advanced amid indications the local economy is on solid footing. The Finance Ministry said late in today’s trading session that Mexico’s industrial output rose 3% in November from a year earlier, up from a downwardly revised increase of 2.4% in October.

The November increase was slightly below economists’ expectations for rise of 3.3%. October growth was revised down to 2.4% from 2.6%. Output rose 0.3% in November from October in non-annualized seasonally adjusted terms.

Adding to positive sentiment, Finance Minister Francisco Gil said there is limited risk to government forecasts of 3.6% to 3.7% economic growth in 2006. He added, however, that for Mexico to achieve a sustained high growth rate it will need to undertake structural reforms.

Cement company shares were some of the market’s biggest gainers on speculation that U.S. tariffs on Cemex may be reduced. Tomorrow, the U.S. Department of Commerce plans to present the results from a review on duties the cement titan has to pay for exports to the U.S.

Argentine issues climbed, in line with other markets in the region. Among individual shares, steelmaker Siderar gained following news yesterday that new regional steel company Ternium, of which Siderar is a part of, filed an initial public offering with the U.S. Securities and Exchange Commission yesterday.

Thomson Financial – www.thomsonfinancial.com


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