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Latin American stock markets roundup

By BRADLEY BROOKS

Stocks were down across Latin America this week as worries about an interest rate cut in the United States slowed traders.

U.S. Federal Reserve Chairman Alan Greenspan told Congress earlier this week that U.S. rates must rise at some point as the domestic economy gets back on track. Greenspan gave no indication of when rates might rise.

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His comments were enough to send Latin American markets spinning, as the negative consequences of a U.S. rate hike are keenly felt across nearly all sectors of the region.

Higher rates in the United States funnel potential foreign direct investment destined for Latin America back into safe-haven U.S. bonds.

Investors once lured by the high - through riskier - returns of stocks and bonds in developing economies return to U.S. Treasuries once they begin to pay more.

But some analysts say the stock markets are jumping the gun, pointing to remaining fragilities in the U.S. economy, which the Fed will want to see improved before rate hikes -- widely expected by mid-summer -- begin.

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The International Monetary Fund on Wednesday reported that its economic growth forecasts for Latin America have been raised, but warned that social unrest and an inability for many companies in the region to borrow abroad pose risks.

The IMF said the region will grow by 3.9 percent in 2004 and by 3.7 percent in 2005. Last year, the region grew by just 1.7 percent.

Last fall, the IMF forecast Latin American growth in 2004 of 3.5 percent. The increased forecast came on higher commodity prices and a general worldwide economic recovery.

But the IMF report fretted over the future ability of companies in the region to gain access to international credit markets.

"With many countries in the region facing substantial external financing requirements over the medium term, a reversal of the currently benign external financing conditions - for example, owing to higher interest rates in industrial countries - remains an important risk," the IMF stated.

Brazilian equities were hit particularly hard after Greenspan spoke about interest rates on Tuesday. The country's Bovespa stock index dropped 2.5 percent that day.

Brazil's bad week was compounded by surprisingly high wholesale inflation numbers that came out this week, as prices rose 1.35 percent in the March 21-April 10 period. That is sharply higher than the 1.09 percent reading for the same time the year previous.

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All of which means interest rate cuts are unlikely to occur with desired speed this year in Brazil. Brazil's rate stands at 16 percent.

Brazil did see some good news on the trade front this week, as the country signed an agreement with China to bolster cooperation on sanitary regulations and farm technology.

Most importantly, the agreement stipulates the countries will work together at the congressional level to try and eliminate agricultural trade barriers.

China is now the largest importer of Brazil's farm goods. Brazil's agricultural industry accounts for 40 percent of the country's gross domestic product.

For the week, Brazil's Bovespa index dropped 1,235 points to end Tuesday at 21,078. Brazil's markets were closed Wednesday for a holiday.

U.S. Treasury Secretary John Taylor met with Argentine Economy Minister Roberto Lavagna in Buenos Aires this week, as the Argentine sought to convey to Taylor that progress was being made on debt restructuring.

Lavagna came to the meeting armed with positive news: Argentina's economic activity was up 10.4 percent in February, as compared to the same month the year previous.

Taylor was in Argentina on a two-day visit and met President Nestor Kirchner on Wednesday.

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Taylor has been a key player in keeping tabs on the rocky relations between Argentina and the IMF, and has often prodded the two sides as Argentina limps along to recovery.

The U.S. Treasury has been taking a tough line of late with Argentina, though, as the country continues talks with foreign creditors on the bonds it defaulted on in late 2001. The Treasury wants to see Argentina come to a successful conclusion of those talks before it gives its backing to continued loans from the IMF.

Argentina's Merval stock index closed at 1,085 Wednesday, down 107 points for the week.

Mexico this week swapped $2.3 billion of bonds for new debt that will lower the country's borrowing costs.

Government officials said the switch will save the government some $50 million in costs. They also claimed this was the first such exchange of bonds made in emerging markets. It was eight years ago that Mexico was the first country to exchange Brady Bonds for global bonds.

In trade news, Mexico's foreign minister insisted this week that the country wants to become part of Mercosur -- the South American trade bloc.

Analysts say the move is political posturing, as, in addition to the obvious geographical separation between Mexico and the Mercosur countries, last year saw Mexico send just $761 million in goods to those nations, less than 1 percent of what it sent to the United States.

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Mercosur is comprised of Brazil, Argentina, Uruguay and Paraguay.

Analysts guess Mexico is simply trying to show some solidarity with its Latin American compatriots as talks heat up for the Free Trade Area of the Americas, which would create a 34-nation free trade zone spanning the Americas.

For the week, Mexico's IPC stock index was off 71 points at 10,539.

In Chile, the government's capital market reforms are running into setbacks.

Officials from the economy ministry were meeting with top legislators on Wednesday to try and salvage legislation bogged down in congress.

The center-left government is being stymied by right-wing party legislators who oppose much of the reform plans.

The government hoped the reforms would bring more venture capital into the country and deepen capital markets. But tough regulation reforms were also tacked onto the legislation after a recent financial scandal in the country's pension system.

Those who oppose the reform bill as it now stands say those regulations would unduly hurt the financial sector.

For the week, Chile's IPSA stock index lost 44 points to close at 1,431.

Political struggles continued in Venezuela this week as the battle over a referendum on President Hugo Chavez's rule heated up.

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The country's elections commission gave the opposition four days at the end of May to verify about 1 million signatures on a petition meant to force the referendum.

Late last year the opposition turned in over 3 million signatures to the commission, well above the 2.4 million required to force a vote on Chavez's presidency.

But the commission -- citing technical problems with some of the signatures -- threw 1.19 million of those signatures out. Opposition members must now verify those signatures during the last four days of May if they are to be counted.

If 2.4 million valid signatures are indeed found, the referendum would likely take place in early August.

Opposition members accuse Chavez of ruining the economy, sparking a class war in the country and generally edging toward authoritarian rule. But his supporters say Chavez, who is of humble origins, is the first president in the country's history to stand up for the poor.

For the week, Venezuela's IBC index plummeted 3,341 points to close at 25,855.

The Colombian government on Wednesday upped its growth forecast for this year to 4 percent from 3.8 percent, saying an increase in private investment has been seen.

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Colombia's economy expanded by 3.64 percent last year, its highest rate in eight years. Analysts say optimism has carried over to this year, with particularly big gains in the coal and textile industries.

Colombia's IGBC stock index lost 93 points for the week at 3,333.

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