20000114

Brazil stocks turn south with bonds

SAO PAULO: Brazilian stocks turned south Tuesday after more fears of rising US interest rates rained on benchmark emerging market bond prices, traders said.

The Sao Paulo Stock Exchange's leading share index Bovespa finished 2.6 percent lower at 16,573 points, dashing hopes that the blue chip index might set a fresh record high.

The Bovespa jumped more than 4 percent Monday, bringing it a tad below its all-time high of 17,092 points.

"Emerging market stocks were hit hard today, along with their bonds," said Carlos Hokama, chief trader at Credibanco. "Lingering fears over higher US interest rates triggered profit-taking again, one day after we saw some good rallies."

The C-bond, Brazil's benchmark bond traded overseas, was down 1.375 at 72 by the time the bourse closed while 30-year US Treasury bonds fell more than a point.

Other Latin American equity markets were also hit by lower Treasuries, with Mexican shares leading the pack. Traders fear that higher US interest rates could lead to capital flight from emerging markets, which have higher yields.

In Brazil, the banking sector pulled the rest of the market down, after Banespa lost 4.3 percent to 66.51 reais on profit-taking on Monday's 7-percent gain. Banks tend to be big losers when debt markets fall as they are usually big holders of bonds in their proprietary trading portfolios.

Banespa shot higher Monday after the government finally announced a firm privatisation date of the federally-owned bank, two years behind schedule.

Brazil's two biggest private banks Bradesco and Itau, which are interested in buying Banespa, also slumped Tuesday, dipping 4.6 percent and 2.4 percent respectively.

One banking analyst at Bozano, Simonsen bank said Banespa still had outstanding debt of over 3 billion reais, which could discourage interested buyers or lead to further delays in the bank's auction.

Itau was also downgraded by Warburg Dillon Read's Latin American banking analyst Laurence Madsen. The analyst lowered the bank to "Hold" from "Buy" on his view that the stock was fairly valued at present levels.

Bucking the general trend Tuesday was cable TV operator Globocabo, which rose 3.45 percent to 3 reais on the company's growth prospects.

Local newspaper O Estado de S.Paulo reported a popular teleconference call with analysts was cut short Tuesday after a flurry of questions from those interested in Globocabo caused the telephone line to collapse.-Reuters