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Brazil’s Trade Surplus Keeps Bulls Busy

Latin American stocks were mixed, with Brazilian stocks posting modest gains amid positive trade data, while Mexican shares followed the U.S. market higher. On the downside, Argentine issues tumbled on profit taking following a five-day rally.

Brazil’s Bovespa Index added 102.04 points, or 0.27%. Mexico’s benchmark Bolsa Index rose 255.28 points, or 1.35%, while Argentina’s Merval Index dropped 46.82 points, or 2.61%.

Brazilian stocks edged cautiously higher, as investors continued to assess the implications of Tuesday’s (January 31) suggestion by the U.S. Federal Reserve that additional interest-rate hikes may be on tap.

Some investors are concerned that further U.S. rate hikes at a time when Brazilian rates are falling could divert funds away from Brazilian bonds and stocks into U.S. treasuries.

At the same time, however, a number of analysts have been bullish on the market’s prospects this year given expectations of solid local economic growth and further interest-rate cuts.

Adding to optimism about the Brazilian economy, the Ministry of Development, Industry and Foreign Trade said today that Brazil posted a sizeable US$ 2.84 billion trade surplus in January, meeting market estimates, which ranged from US$ 2.6 billion to US$ 3.0 billion.

The result was up from a year-earlier surplus of US$ 2.19 billion but below December’s surplus of $ 4.35 billion. January exports totaled US$ 9.27 billion, while imports totaled US$ 6.43 billion.

On the corporate front, paper and pulp company Suzano said it will invest US$ 690 million in 2006 in its Mucuri pulp project in southern Bahia state.

In earnings news, telecom carrier Tim Participações SA, a unit of the Telecom Italia, reported a fourth-quarter net profit of 145 million reais, up 74% from 83.4 million reais in the year-ago period. Results were helped by a 32.8% increase in its client base and tight cost controls.

Separately, the board of Tim Participações approved the incorporation of Tim Celular as its subsidiary, in a move that will organize all of Telecom Italia’s Brazilian assets under a single structure. Pending completion of the move, the company will operate under the name of Tim Brasil.

Meanwhile, a major investment bank downgraded mining company Caemi to "peer perform" from "outperform," citing a plan by controller Vale do Rio Doce to fully absorb Caemi. "Regulatory approval is still pending, but we do not foresee any issues … We are not aware of any legal basis for Caemi shareholders to block the deal," the bank said.

In other research, an investment bank upgraded utility Eletropaulo to "outperform" from "peer perform," citing an attractive valuation and strong growth prospects.

Elsewhere, Mexico’s bolsa posted solid gains, as investors were emboldened by a rise in U.S. stocks amid a sharp drop in oil prices and stronger-than-expected earnings from U.S. aerospace giant Boeing.

In local corporate news, Mexican mining and railroad company Grupo Mexico SA said it plans to list shares in its transport unit ITM upon receiving antitrust clearance for last year’s rail merger. The company added that it is confident that Mexico’s Federal Competition Commission will approve the merger. Grupo Mexico’s stock rose today, as investors continued to cheer the company’s upbeat earnings news yesterday.

Meanwhile, AeroMexico ordered six new generation B737 planes from Boeing Co. The order, due for delivery in 2007, is valued at US$ 372 million.

Argentine issues dropped, as investors took profits following a five-day run-up in the market. Among the movers, flat steelmaker Siderar tumbled as investors cashed in some of the stock’s recent strong gains ahead of new holding company Ternium’s listing of ADRs in the U.S. Ternium, which is owned by local conglomerate Techint, said late yesterday that its ADRs priced at US$ 20 apiece, above price talk of US$ 16.50 to US$ 18.50.

Also, Petrobras Energia Participaciones dropped after saying it would take a charge of 170 million pesos against its 2005 earnings.

Thomson Financial – www.thomsonfinancial.com

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