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Brazil: 3 Days of Advancing Stocks Plus 0.75 Reduction in Interest Rates

Latin American stocks were mixed to higher, with Brazilian shares gaining on benign local inflation data, while continued optimism about the first-quarter earnings season boosted Mexican issues. Profit taking dragged Argentine shares lower.

Brazil’s Bovespa Index jumped 365.27 points, or 0.92%, while Mexico’s benchmark Bolsa Index added 113.02 points, or 0.57%, and Argentina’s Merval Index fell 11.90 points, or 0.61%.

Brazilian stocks rose strongly for a third straight day, as tame inflation data added to optimism about the local interest-rate outlook.

The Fipe research foundation said its São Paulo consumer price index dropped 0.06% in the four weeks ended April 15, compared with a rise of 0.03% in the four weeks ended April 7.

Given recent signs that Brazilian inflation is under control, investors largely expect the central bank to announce an interest-rate cut of 75 basis points after today’s market close. It would be the bank’s seventh rate reduction in as many months.

As expected, the Copom, the Central Bank’s Committee of Monetary Policy decided to make a cut, bringing Brazil’s key interest rate, the Selic, to 17.75%, the lowest rate since March 2001.

In other economic data, Brazilian retail sales volume dropped a seasonally adjusted 4.13% in February from January, the Brazilian Census Bureau reported. In January, retail sales volume had risen 4.12%.

On the corporate front, a major brokerage upgraded Brazil’s two biggest banks Banco do Brasil SA and Bradesco SA to "outperform" from "peer perform," saying "a recent sell-off creates a buying opportunity."

Also, two major airlines received broker upgrades as well. Both TAM and Gol saw their shares upgraded to "buy," due to good industry prospects, an expanding Brazilian economy and difficulties faced by flag carrier Varig.

Fixed-line phone company Telemar was in focus after the Brazilian Securities and Exchange Commission said it will investigate the company’s share restructuring deal after its shares surged ahead of the deal announcement last week.

Elsewhere, Mexican shares climbed for a third straight day reaching another record close. Shares have been supported in part by hopes for a strong first-quarter earnings season. A number of companies are due to report this week and next, with cement giant Cemex’s results due out early tomorrow. The company is expected to report solid earnings growth.

In other developments, retail association Antad said today that total sales at member establishments rose 9.8% in March, while same-store sales edged up 0.4% from the year-earlier month. Sales at self-service stores rose 5% year-on-year, while same-store sales dropped 2%.

Argentine issues dipped as investors took profits following yesterday’s strong gains. In economic news, Argentina posted a primary surplus of 1.404 billion pesos in March, up 13.7% from March 2005.

Meanwhile, manufacturing activity climbed 7.2% in March from a year earlier and added 0.4% from February. The year-on-year increase was down from February’s growth rate of 8.6%.

Thomson Financial – www.thomsonfinancial.com

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