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Commitment to Austerity is Sacred, Says Brazil’s New Finance Minister

Latin American stocks advanced, with Brazilian stocks posting the biggest gains on a continued positive outlook for the local economy. Meanwhile, Mexican shares were boosted by a flurry of merger activity on both sides of the border.

Brazil’s Bovespa Index surged 765.10 points, or 2.02%. Mexico’s benchmark Bolsa Index climbed 361.58 points, or 1.88%, while Argentina’s Merval Index shed 1.89 points, or 0.10%.

Brazilian stocks rallied, as investors were heartened by an improved local inflation outlook. Economists polled in the central bank’s latest weekly market survey said they expect IPCA consumer price inflation to come in exactly on target at 4.5% this year, down from forecasts of 4.57% seen last week.

Economists also predicted that the country’s reference Selic rate will fall to 14.13% through the end of the year, down from previous estimates of 14.25%. The Selic rate currently stands at 16.5% annually.

Adding to positive sentiment, Brazil posted a US$ 3.681 billion trade surplus in March, up from a US$ 3.343 billion surplus a year earlier, the Brazilian Ministry of Development, Industry and Foreign Trade said.

Exports during March totaled US$ 11.367 billion and imports totaled US$ 7.686 billion. That compared with US$ 9.251 billion in exports and US$ 5.908 billion in imports a year earlier.

Lending additional support to the market, concerns about the direction of the government’s economic policy continued to recede. Recently appointed Finance Minister Guido Mantega said this Monday, April 3, that the government’s commitment to tight 2006 fiscal austerity targets is "sacred."

In recent days, Mantega has expressed support for the policies of his market-friendly predecessor Antonio Palocci, who stepped down amid repeated corruption allegations.

In corporate news, airline manufacturer Embraer said it plans to increase investment to US$ 290 million during 2006. During 2005, the company invested the equivalent of US$ 249 million at the current exchange rate.

"We have been launching a number of key new planes in the last couple of years and continue to invest in improving our products," Embraer said.

Separately, Embraer reported on Saturday net fourth-quarter earnings of 205.2 million reais, down from 307.3 million reais a year earlier due largely to the appreciation of the Brazilian real.

Oil giant Petrobras said its petrochemicals unit, Petroquisa, decided not to use an option to boost its stake in petrochemicals firm Braskem. The company had until Friday to raise its stake in Braskem to 30% from 10%. An investment bank today downgraded Braskem to "sell" from "neutral" after Petroquisa’s decision.

In other research news, a major investment bank upgraded cosmetics maker Natura Cosméticos SA to "buy" from "neutral" on earnings growth. Meanwhile, another firm downgraded long steel giant Gerdau to "peer perform" from "outperform," due to valuation.

Mexican issues rallied today, as merger fever took hold on both sides of the border. Mexican stocks leapt to a fresh record high, with the IPC Index up nearly 2% on the day. Mining firms also benefited from advancing metal prices.

Topping headlines, wireless phone company America Movil agreed to purchase South American and Caribbean assets from Verizon. The firm formed a joint- venture with Telmex to buy Verizon’s 28.5% stake in Venezuela’s CANTV for US$ 676.6 million. America Movil also agreed to buy Verizon Dominicana for US$ 2.06 billion and a 52% stake in PRT for US$ 939 million.

In other deal news, Libbey Inc., a glass tableware maker, agreed to buy Vitro de C.V.’s 51% stake in Vitrocrisa Holdings and related firms for US$ 80 million. Libbey now owns 100% of the firm.

Elsewhere, National Mining and Metal Workers Union members went on strike today in the Pacific port of Lazaro Cardenas, effecting mills owned by Monterrey-based Grupo Villacero and the Mexican unit of Mittal Steel.

Argentine shares barely budged today, as investors chose to ignore the broader regional market rally. Investors are awaiting economic data in the form of the consumer price index for March.

On the corporate front, France’s Suez SA said that is considering selling its controlling stake in Argentina’s Aguas Cordobesas.

Thomson Financial – www.thomsonfinancial.com

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