NEW YORK, April 14 (UPI) -- Stocks were mostly down across Latin America this week as Brazil's rally slowed and profit taking was seen in Mexico after record gains there.
Equities in Brazil have generally been on the rise since October 2002 when President Luiz Inacio Lula da Silva was elected. The run-up to that election spooked markets for the year prior to that, as no one was positive what economic course the leftist Lula might take.
Once elected, Lula made clear he would stick to orthodox economic policies, and it has been all up since then.
All up, that was, until the first quarter of this year.
Since his election, Brazilian stocks jumped nearly 160 percent, with the caveat that significant drops in the market prior to late 2002 made the base figure from which that increase was calculated unusually low.
Yet in the first quarter of this year, the country's main Bovespa stock index was down 0.4 percent.
So does this spell the end of the magnificent rally? Most analysts think not, with many saying that the Bovespa's second quarter should see significant gains, with the market consensus being jumps of 15 to 20 percent this quarter.
But beyond that analysts are less certain, with the looming threat of increases in the U.S. interest rate clouding the picture.
A rise in the U.S. interest rate hurts rallies in Latin America in many ways. Primarily, it draws money that may have been invested in the region to the more secure U.S. treasuries, which become more attractive by yielding higher rates.
Higher rates in the United States also make it more expensive for Latin American companies to borrow abroad, slowing potential growth in the corporate sector.
Also aiding Brazil's second quarter, analysts say, is the resolution of some problems that hurt the first quarter, primarily the passing of a campaign finance scandal that stung Lula and sent markets off track.
Additionally, traders are no longer guessing about when the Fed might increase U.S. interest rates - they are expected in late summer. While investors in Brazil would rather not see the cuts, at the end of the day they'd rather just have a good idea of what the future holds.
Finally, Brazil's central bank is expected to continue cutting its own interest rate, after halting cuts in the first quarter on inflation concerns.
On the reform front, a vote on changes to Brazil's bankruptcy law, which has been long hoped for by foreign investors, is being delayed in the Senate this week.
The bill is part of the Lula government's bid to make significant economic reforms. Changes to bankruptcy laws are meant to quicken the pace of legal proceedings, to allow more leeway for companies to recover and to give creditors more protection in recovering what is owed to them.
Changes to the law would likely have the added effect of lowering interest rates, analysts said, as the risks of lending would be lessened.
For the week, Brazil's Bovespa stock index lost 131 points to end Wednesday at 22,312.
The Argentine government announced this week new tax breaks which they hope will boost investment in infrastructure and capital goods, and keep the country's economic rebound rolling.
Economy Minister Roberto Lavagna said the changes will include higher employer contributions for workers with relatively high salaries and a roadmap for significantly reducing a financial-transactions tax that has been the target of much criticism.
To prompt investment, Lavagna said that companies and individuals for the next three years will not pay a 21 percent value-added tax on investments connected to infrastructure.
But on the ever-present problem of restructuring the country's debt in the wake of the late 2001 default, there were few notes of happiness from investors this week.
A spokesman from the economy minister told reporters that the country will meet with only four foreign bondholder groups. That after some 22 groups requested to attend meetings this week in Buenos Aires.
Foreign bondholders have been incensed with the Argentine government's efforts to restructure its debt. To date, Argentina has offered to payback at most 25 percent of the money it owes, which bondholders have rejected out of hand.
The International Monetary Fund has stepped up pressure on Argentina, but has not cut off new loans to the country, for fear that Argentina would default on what it owes to the IMF itself.
No breakthroughs are expected to come out of the upcoming meetings with the four bondholder groups, analysts said, and negotiations over the debt are expected to continue into the foreseeable future.
For the week, Argentina's Merval stock index gained 10 points to end at 1,192.
In Mexico, equities were still hitting record highs this week, though profit taking late took the edge off the rally.
But analysts say there are some underlying concerns that could halt the rapid upward climb of stocks.
Seasonally adjusted industrial production in February, the government reported this week, fell .58 percent from January, though it was still up 2.2 percent as compared to February 2002.
February's drop from the month previous ended a series of month-on-month gains in industrial production, and surprised analysts.
"We expected a stronger showing from the manufacturing sector because of the strong performance of manufacturing exports in the February trade figures," a UBS Investment Research report stated Tuesday.
Of particular concern for many analysts are signs that industrial links between the United States and Mexico have been weakening of late. Industrial production in Mexico is directly tied to the United States as U.S. producers absorb much of what Mexican manufacturers create.
For the week, Mexico's IPC stock index lost 137 points to end at 10,610.
Meanwhile, in Chile, the battle with Argentina over natural gas importation continued this week, and has left many analysts worried about the threats it poses to Chile's economy, despite government officials' words that none exist.
Argentina sends about 90 percent of its natural gas exports to Chile, and that gas has been relied upon by Chile as a cheap means of energy production.
But with Argentina's economic recovery of late, energy demand has risen in that country, enough so that Argentine authorities ordered the reduction of gas exports to Chile.
That means Chile would have to rely on the more expensive coal to meet its energy needs, and that would translate into higher prices for Chilean consumers.
This week saw Chilean officials pushing for a new gas treaty with Argentina, one that would include more clear-cut outlines for conflict resolution. Top officials from the economy ministries of both countries are slated to meet in upcoming days to try and work out their differences.
For the week, Chile's IPSA stock index slipped 21 points to close at 1,475.
The Venezuelan government collected 50 percent more taxes than it had forecast in March, officials said this week.
That is a good indication that the country's economy, which has shrunk by 18 percent during the last two years, is on the rebound after political upheaval and nationwide strikes that paralyzed the economy.
Officially, the country's economy came out of its two-year recession in the fourth quarter of last year, but analysts have been waiting for further signs that the worst is over for Venezuela.
According to government projections, the economy will grow by 6 percent this year.
For the week, Venezuela's IBC index added 1,928 points to end at 29,196.
The head of the IMF mission to Colombia said this week that the country is abiding by the demands set out in its $2.1 loan agreement.
Those demands include primarily meeting budget and foreign reserve targets.
Robert Rennhack, the IMF official, added that the Colombian government has been working hard to keep inflation down, too. Analysts expect inflation to come in around 6 percent this year.
Last year Colombia's economy grew by 3.75 percent, with forecasts for this year being roughly the same.
For the week, Colombia's IGBC index lost 17 points to end at 3,426.
