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Latin American market roundup

By
BRADLEY BROOKS, UPI Business Correspondent

SANTIAGO, Chile, March 14 (UPI) -- Latin American equities weren't stellar but remained stable this week as the markets, Mexico in particular, are optimistically eyeing an economic turnaround in the United States and the potential flow of foreign capital that development would bring.

Of all markets across the region, Mexico and Brazil -- Latin America's largest economies -- are where most analysts are seeing the biggest coattail turnarounds, once the U.S. economy begins to roll. While Mexico, with about 85 percent of its exports heading to the United States, appears the more stable of the two, those who can stomach the dangers further south see Brazil as fertile territory for big, though risky, gains.

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Some of that Brazilian risk reared its head this week as the right-leaning Liberal Front Party (PFL) abandoned President Fernando Henrique Cardoso's ruling coalition government. The PFL says Cardoso's Brazilian Social Democratic Party conducted a smear campaign against PFL's contender for the presidential elections in October. The PFL candidate, Roseana Sarney, a favorite in the polls, demanded her party leave the government after police raided her husband's company, accused of stealing millions from an Amazon development group.

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All which casts doubt as to how PFL members will vote in Congress on upcoming legislation dealing with the economy, namely the renewal until 2004 of the CPMF financial transactions tax, now scheduled for vote early next week. With PFL's exit, the tax, which brings in more than $8 billion a year and includes an exemption on stock trading, could be killed. PFL leaders, though, are indicating they will still support the measure.

By Tuesday, Sarney was falling in presidential polls while Jose Serra, President Cardoso's candidate, was rising. Despite the upheaval, the market remains calm as, in the long run, it could mean that there will be just one strong pro-business candidate to battle against the leader in all the polls, Luiz Inacio Lula da Silva of the leftist Workers Party.

While the Brazilian business daily Gazeta Mercantil reported on its Web site Wednesday that high-level PFL officials are looking at pulling the plug on Sarney's candidacy, officially the party remains behind her. "The PFL has met and was very clear in ratifying the candidacy of Roseana Sarney," said PFL President Jorge Bornhausen. "We are convinced that it (the investigations into her husband's company) was a political maneuver to destabilize the candidacy of Roseana."

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Despite all the political rumbling, Brazil's Bovespa index remained firm, mostly on hopes of an interest-rate cut and boom times ahead in the U.S. Last Thursday, the Bovespa ended down 0.8 percent at 13,725 on jitters concerning the split in Cardoso's coalition government. Fixed-line phone company and market heavyweight Telemar finished off 2.25 percent. Friday brought a much-needed rise of 1.72 percent to 13,961, but jitters about the political fighting were still evident. Telemar bounced back on the day, gaining more than 3 percent.

Monday brought a loss of nearly 2 percent to 13,696. Leading cellular company Telesp posted a bigger loss than expected for 2001, and its stock accordingly dropped 7.8 percent, also leading to sell-offs across the telecommunications sector.

On Tuesday, the Bovespa gained more than 3.5 percent to 14,181.4 as political tensions began to cool and optimism for an interest rate cut flourished after news of lower inflation in February. State-run oil giant Petrobras gained 1 percent after announcing an increase in gasoline prices. The Bovespa rose 0.44 percent to 14,244.16 Wednesday as the political situation continued to stabilize and the tax extension, while having its vote in Congress delayed, appeared likely to pass. Telemar ended 0.3 percent down.

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In Mexico, the Latin American market that will benefit most from an economic turnaround in the U.S., the IPC index was up on U.S. optimism and a good week for the telecommunications and banking sectors.

Last Thursday, the IPC ended off 1.3 percent at 7,061 as profit taking and a down day on Wall Street weighed. The index, which has gained some 11 percent since Jan. 1, remains confident that brighter days and, more pointedly, increased consumer activity in the U.S., are ahead. On Friday, the IPC rallied nicely to 7,192.22 after a report of an improved U.S. labor market in February.

On Monday, the index ticked 0.43 percent lower to 7,161.4 in weak trade. Cellular giant America Movil gained 1.35 percent after a rating upgrade. Tuesday brought a gain to 7,278 as investors continued to see the country as the first to benefit from a recovery in the U.S. America Movil jumped 1.66 percent. The IPC ended 0.7 percent off at 7,225.52 Wednesday as industrial group and market heavyweight Alfa fell 1.32 percent as investors bet the country remains in recession until July. America Movil declined 2.3 percent while fixed-line telephone giant Telmex dropped 1.7 percent.

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In Argentina, the MerVal index benefited modestly from investors seeking protection from a falling peso and news that the nation's largest private bank was getting a bailout.

Last Thursday, the MerVal ended down 1.45 percent at 377.36 in an across-the-board bad day. Grupo Financiero Galicia was one of the few winners on the day, as it pushed its rescue plan that involves offering rivals some 1 billion pesos in shares in exchange for debt. On Friday, the index jumped 3.24 percent to 389.6 as Galicia again gained. The banking group ended up more than 9 percent. On Monday, the MerVal rose more than 2 percent to 398 on news that Galicia was getting a bailout to the tune of $757 million from equity swaps for debt with other banks, the country's deposit-insurance fund and a banking-assistance fund. Tuesday saw a jump to 408.7 as investors bought blue chips while watching the peso fall, as has been the case since the currency's float early January. The MerVal finished 1.33 percent lower at 403.05 Wednesday as the peso gained. Also dragging the day was the an IMF statement that there would be no quick beginning to aid payments for the country.

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In Chile, the IPSA index ended last Thursday more than 0.9 percent higher at 101.53. Telefonica CTC Chile rose 1.87 percent. On Friday, the index finished flat 101.68, mostly on profit taking in U.S.-listed companies. Monday brought a drop to 100.72 despite anticipation of an interest rate cut which may be announced after the bell on Tuesday. The IPSA dropped to 99.85 Tuesday as profit taking and sluggish trade ruled the day. After the central bank announced a 0.75 percent interest rate cut to 4.75 percent, the index rose to 100.23.

In Venezuela, the IBC ended slightly up Thursday at 6,941.5, then rose again Friday to 6,985.11, despite word of a manager and white-collar worker's strike that day at the state-run oil company to protest President Hugo Chavez's appointment of a new president to the outfit. Monday saw a drop to 6,944.5 as the tension at Petroleos de Venezuela continued. Tuesday brought a rise to 6,971, while the index declined to 6,914 on Wednesday.

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