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Brazil's US$ 4 Bi Buyback of Foreign Debt Can't Prevent Stocks Fall PDF Print E-mail
Written by Michael O'Brien   
Monday, 05 June 2006

Brazilian and Latin American stocks in general dropped, in line with the U.S. market, on concerns about rising U.S. inflation and interest rates. In Argentina, new economic data showed local inflation eased in May.

Brazil's Bovespa Index tumbled 1202.32 points, or 3.17%. Mexico's benchmark Bolsa Index dropped 466.81 points, or 2.40%, while Argentina's Merval index plunged 42.66 points, or 2.52%.

Brazilian shares declined on concerns about inflation overseas as interest rate concerns eclipsed news of a government move to buy back up to US$ 4 billion in external debt.

According to analysts, investor sentiment about emerging market investments received a boost early today from Brazil's decision to repurchase some US$ 4 billion in bonds.

The buyback, which was aimed at improving Brazil's external debt profile, underlines the strong economic fundamentals in the country, analysts said.

In addition, a lack of inflationary pressures raised expectations for the Brazilian Central Bank to continue its recent monetary easing cycle. In May, the bank reduced the Selic base interest rate to 15.25% per year, the eighth-consecutive rate cut.

Among the movers, mining giant Companhia Vale do Rio Doce declined. Late Friday, the company said its bid to develop an iron ore deposit in the African country of Gabon was unsuccessful.

Steelmakers were lower across the board, with Arcelor Brasil, the umbrella company for No. 2 global steel giant Arcelor's Brazilian steelmaking assets, down at day's end.

In Mexico City, shares sank, with some traders saying the summer season and Friday's World Cup opener were slowing trading activity.

Bucking the downtrend, share of wireless phone giant America Movil were higher. Deutsche Bank raised the stock to "buy" from "hold" Monday.

Elsewhere, Argentinean issues fell, despite news that inflation eased in May, as food prices showed the effect of new government price accords.

According to INDEC, the consumer price index rose 0.5% in May from April, and 11.5% from a year earlier, a halving in the monthly rate from that of April and comfortably below a median forecast of 0.7% taken from a Dow Jones Newswires survey of five economists.

After easing earlier this year from the 12.3% it hit at the end of last year, the annual inflation rate jumped back up to 11.6% in March from 11.1% in April.

Meanwhile, Bolivia said that negotiations over the price of its natural gas exports to Argentina have stalled after Argentina said it was shipping some of the gas to Chile, Bolivia's longtime rival.

Thomson Financial Corporate Group - www.thomsonfinancial.com

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