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High Inflation Doesn’t Deter Bulls in Brazil

Latin American stocks were mixed to higher, with Brazilian stocks advancing, as signs of accelerating local inflation failed to dent optimism about the economy and interest rates.

Meanwhile, Mexican shares climbed on bargain hunting following a four-day decline. On the down side, Argentine issues were dragged down by investor caution ahead of earnings releases later this month.

Brazil’s Bovespa Index gained 382.90 points, or 1.05%. Mexico’s benchmark Bolsa Index added 108.09 points, or 0.59%, while Argentina’s Merval Index dropped 12.7 points, or 0.74%.

Brazilian stocks jumped, as investors shrugged off a report showing consumer price inflation accelerated in January due in part to higher ethanol fuel prices.

The Brazilian Census Bureau (IBGE) said the government’s official IPCA consumer price index rose 0.59% in January compared with a 0.36% increase in December, exceeding expectations for inflation of 0.55%. Inflation in the twelve months through January accelerated to 5.70% from 5.69% for the full- year 2005.

The data was the latest sign of mounting inflation, bolstering expectations that Brazil’s central bank will continue to cut Brazil’s lofty Selic interest rate at a gradual pace. Strong industrial output data released Tuesday also fueled expectations for a continued gradual approach to rate cuts.

In corporate news, mining giant Companhia Vale do Rio Doce (CVRD) said that it sold its stake in ferrosilicon producer Nova Era Silicon to JFE Steel Corporation for US$ 14 million. CVRD said the sale is part of its move to focus on manganese ore and alloys production through wholly owned subsidiaries.

Shares of steel maker Gerdau were active again after the company announced upbeat fourth-quarter earnings results. The company also said it was raising its expected capital investment budget in a bid to modernize and expand its steel plants.

State-run oil giant Petrobras was in focus after confirming yesterday that it has been in talks with Russian natural gas monopoly Gazprom about a possible cooperation of the two companies.

Elsewhere, Mexican shares were in recovery mode today, after four-straight losing sessions. The Mexican Stock Exchange delisted shares of 21 firms that did not meet the exchange’s requirements. In economic headlines, the Bank of Mexico reported that the Consumer Price Index rose 0.59% in January, lifting annual inflation to 3.94% from 3.33% at December’s end. The most recent result was in line with expectations.

Retail giant Walmex announced that its sales for 2005 jumped 13.7% to a record 164.4 billion pesos from 2004. The firm also said that its board approved a two-for-one stock split. Walmex will report earnings later this evening.

Meanwhile, wireless provider America Movil gave back some of the gains it attained yesterday when it posted strong quarterly financial results. Today, a major investment bank lifted its earnings and share price estimates due to the firm’s "higher operating estimates."

Fast food operator Alsea SA announced plans to open 89 outlets in 2006, which would bring its total to 815. Included in this year’s opening targets are 24 Domino’s Pizza stores and 48 Starbucks coffee shops.

Select financial firms released earnings last night. Santander Serfin, the Mexican unit of Spain’s Santander Central Hispano SA, said that its fourth- quarter net profit rose 3% year over year to 1.53 billion pesos. For the full- year 2005, the firm’s net profit rose 9% to 6.75 billion pesos when compared to 2004, while the bank’s loan portfolio advanced 11% from a year ago. Separately, Inbursa said that a swap position contributed to a sharp decline in its fourth-quarter net profit. The firm’s net profit landed at 390.3 million pesos, compared to 1.46 billion pesos a year ago. For 2005, Inbursa’s net profit declined to 2.91 billion pesos from 5.55 billion pesos in 2004.

Argentine issues turned lower today, as investors await earnings releases later this month before buying into the market. In economic reports, Universidad Torcuato Di Tella said that consumer confidence slipped 1.5% in February month-over-month, and inched up 0.4% from a year ago. The consumer confidence index is up about 12% since September of last year.

In earnings news, power transporter Transener posted a net profit of 612.1 million pesos for the full year ended December 31, compared to a loss of 121.5 million pesos in 2004.

Thomson Financial – www.thomsonfinancial.com

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