www.forbes.com Reuters, 01.24.03, 12:32 PM ET

NEW YORK, Jan 24 (Reuters) - Brazilian sovereign bonds drove the emerging debt market lower on Friday as the upcoming Monday release of a key U.N. weapons report kept uncertainty running high, prompting investors to trim some of their holdings. Venezuela's bonds hovered steady as investors saw a glimmer of hope for the oil-reliant economy ravaged by a seven-week-old general strike. Although foes of President Hugo Chavez are maintaining the shutdown, the use of replacement workers has helped lift oil output, which should bolster the finances of the cash-strapped government.

Brazil's share of the J.P. Morgan Emerging Market Bond Index Plus lost 1.33 percent in terms of daily returns, helping to press the broader index down 0.32 percent on the day. Venezuela's portion of the index was little changed.

With weapons inspectors set to deliver their findings of a two-month search for Iraqi arms to the U.N. Security Council on Monday, many investors were lightening their positions or sitting on the sidelines, said traders. If Iraq is found in "material breach" of U.N. resolutions, it could trigger war.

"There's too much in the air for next week so I think people are just a little concerned going into the weekend not knowing what will happen on Monday," said an emerging debt trader. "It's almost like the year-end when people were paring positions just to see what happens."

The war worries have weighed on U.S. stocks and the dollar in recent days as investors fret about the global economic fallout of a possible U.S.-led attack on Iraq. Sliding U.S. markets, in turn, reduce investor appetite for riskier assets, such as emerging debt.

Brazil, in particular, has taken a hit from the Iraq nervousness. Optimism over the economic policies of new President Luiz Inacio Lula da Silva fired up Brazilian bonds in the beginning of the year, giving investors room to take profits.

"In Brazil, I think a lot of guys are just pushing short (positions)," said another emerging debt trader. "It's probably not a bad strategy given people's lack of desire to own anything right now because there's so much uncertainty in the world."

In Venezuela, Chavez is using troops and replacement crews to try to break the strike that is aimed at forcing him to resign or call new elections. Opposition oil workers conceded that crude production was rising and reached 25 percent of capacity at 812,000 barrels per day (bpd) on Thursday. But the government says production is above 1 million bpd.

Investors are also hoping the mediation efforts of former U.S. President Jimmy Carter and a six-nation group led by the United States and Brazil will yield a resolution to the impasse. The group of nations was slated to hold talks in Washington on Friday with Chavez's government and his foes.

"We expect the gradual improvements now underway will fuel a gradual rally back to around 75 on DCB (bonds), up from about 69.5 now, although that rally could take a painful few weeks to develop," said Christian Stracke, head of emerging debt strategy at research firm CreditSights, in a report.

Venezuela's DCB bond <VENDCB=RR> was 0.5 points higher in Friday midday trading at 68.75. (Reporting by Susan Schneider; editing by Phil Berlowitz; Reuters Messaging: susan.schneider.reuters.com@reuters.net, tel: +1 646 223 6319)

www.afxpress.com

LONDON (AFX) - Oil prices firmed in late afternoon trade on US fund buying, ahead of a report Monday by weapons inspectors to the UN Security Council, dealers said.

At 5.07 pm, March-dated Brent crude futures traded up 38 cents on the day to reach 30.10 usd a barrel, compared with 29.78 usd in late morning trade.

In New York, the reference light sweet crude March contract gained 46 cents a barrel to reach 32.71 usd.

"There is some fund buying coming in from the US side, with people adding to long positions, which explains the recent strength this afternoon," said trader Mark Keenan at ABN Amro.

He said investors were also squaring positions to limit exposure to risk over the weekend, both from the negative effects of headlines from Venezuela and any gains relating to a possible war with Iraq.

The chief UN weapons inspectors are due Monday to give a key report to the UN Security Council.

Diplomats believe the US, which with the UK is massing tens of thousands of troops in the Persian Gulf region, might use a negative report as a reason to launch military action against Iraq.

However, France and Germany issued a joint declaration yesterday in which both countries restated their opposition to any unilateral decision by the US to go to war.

Analysts say unilateral action by the US poses a greater threat to global oil supplies than action by an international coalition, citing the risk of a backlash and political instability in other Arab oil producers, notably Saudi Arabia.

OPEC secretary general Alvaro Silva-Calderon said the world is not on the verge of an oil crisis yet, but the cartel can do little if the US launches military strikes on Iraq.

"We are in a transitory situation and not on the edge of an oil crisis," he said, at the World Economic Forum in Davos.

When asked what would happen to global oil prices in the case of a military conflict, he added: "We don't know. It's out of our control."

Recent reports said OPEC output is currently at capacity, leaving little room for increases if a shortage looms.

Keenan said prices had retraced lower this week on signs that the eight-week long strike in Venezuela was beginning to collapse.

Venezuela's opposition showed support for a proposal to be taken up by international mediators in Washington today, saying a 54-day-old strike would be called off if agreement on early elections is reached.

However, Kevin Norrish at Barclays Capital said the country's exports remain severely curtailed, despite an admission by oil workers that output had recently increased to around 715,000 bpd.

Pre-strike output stood at just under 3.0 mln bpd according to industry estimates.

frank.watson@afxnews.com

sg.biz.yahoo.com Saturday January 25, 12:42 AM

LONDON (Dow Jones)--The Organization of Petroleum Exporting Countries raised its forecast for 2003 demand by 80,000 barrels a day to 77.17 million b/d from earlier forecasts as colder-than-normal winter temperatures and changes to power generation in Asia boosted consumption.

In its monthly oil market report published Friday, OPEC also revised up its 2002 demand to 76.55 million b/d from 76.43 million b/d in the previous report for the same reasons.

The call on OPEC crude for 2003 was unchanged from the previous report at 24.7 million b/d.

Production from the OPEC-10, which excludes Iraq, fell 1.825 million b/d in December versus November to 24.840 million b/d due to the general strike in Venezuela which significantly reduced production and exports from the oil-rich country.

According to the report, Venezuela's output in December fell to 843,000 b/d from 2.935 million b/d in November.

sg.biz.yahoo.com Saturday January 25, 12:43 AM By Erik T. Burns Of DOW JONES NEWSWIRES

DAVOS, Switzerland -(Dow Jones)- The Organization of Petroleum Exporting Countries Secretary General Alvaro Silva-Calderon said Friday he is worried about the current high level of oil prices, but said there was no shortage in supplies.

"We believe that the problem is not the supply - the market is well-supplied," Silva told Dow Jones Newswires at the World Economic Forum's annual meeting. Even so, "OPEC is worried about the level of prices," he said.

"At present, the problem is the threat of the war (in Iraq), the nervousness in the market, and the situation of Venezuela also," Silva said, referring to the seven-week strike that has crippled Venezuela's oil industry and reduced exports to a trickle.

But Venezuelan output is increasing, he said. The country is currently producing around 1.2 million barrels a day, and expects to increase that to 2.0 million b/d by the end of February. Venezuela's capacity is around 2.7 million-2.8 million b/d, he said.

"The current situation (in Venezuela) is a transitory situation," Silva said.

He added that a "war premium" in the crude oil price based on fears of disruptions to Iraqi oil exports in the event of war was more difficult to address.

"That is out of our control," Silva said.

Silva also said OPEC is concerned about the possibility of oversupply in the market going into the second quarter, following its Jan. 12 decision to raise its output ceiling by 1.5 million b/d, effective Feb. 1.

Oversupply in the second quarter, when warmer weather traditionally leads to lower demand, "could cause a violent drop of the price," Silva said.

Asked about non-OPEC producers, Silva said cooperation with them is getting better.

"They share with us the concept of the stabilization of the market," Silva said.

-By Erik T. Burns, Dow Jones Newswires; +351 917 265 020; erik.burns@dowjones.com

abcnews.go.com — By Pascal Fletcher

CARACAS, Venezuela (Reuters) - Foes of Venezuelan President Hugo Chavez, struggling to maintain the momentum of a 54-day-old strike, lobbied on Friday for international pressure to push the leftist leader to accept early elections.

As the strike moved toward its ninth week, opposition negotiators were in Washington, where a group of six nations formed to tackle the Venezuelan crisis was due to hold its first meeting at the Organization of American States.

Former U.S. President Jimmy Carter was due to outline proposals to end the crisis at the Washington meeting.

The opposition shutdown has slashed oil output by the world's No. 5 petroleum exporter, pushing up world prices. It has also triggered a fiscal crisis for the Venezuelan government, forcing it to suspend foreign exchange trading and cut back budget spending by 10 percent.

But, in a sign that Chavez is making some headway in his efforts to break the strike, oil production and exports have been rising again. Still, oil exports, the country's economic lifeblood, were only a quarter of normal levels.

The six-nation "group of friends" comprises the United States, Brazil, Mexico, Chile, Spain and Portugal.

Venezuelan oil supplies to the United States, normally over 13 percent of total U.S. oil imports, have been disrupted by the strike, just when the United States is preparing for a possible war on Iraq.

The "friends" group was created last week to back ongoing efforts by OAS Secretary General Cesar Gaviria to broker a peace deal between Chavez and his opponents, who are pressing the populist president to resign and hold early elections.

FEAR OF INTERNAL CONFLICT

Opposition negotiators said they hoped the group could exert pressure on Chavez to accept the idea of a negotiated electoral solution to end the crisis, which has raised fears of a violent, uncontrollable internal conflict in Venezuela.

"We must be optimistic ... The group can be very important to strengthen the civilized, peaceful option (of elections) to solve our problems," Alejandro Armas of the Coordinadora Democratica opposition coalition told local radio in Caracas, speaking by telephone from Washington.

The opposition negotiators were planning to meet with foreign ministers from the "friends group," which included Secretary of State Colin Powell.

Chavez, a former paratrooper who survived a brief coup last year, is resisting calls for early elections and has vowed to beat the strike. He accuses his opponents of trying to topple him from power by wrecking the economy.

"We do not negotiate with terrorists. We do not negotiate with coup-mongers. We defeat them," he told tens of thousands of supporters who rallied in central Caracas Thursday.

Chavez has also expressed objections to the six-nation "friends" group, saying he thinks it should be expanded to include other nations like Russia, China and Cuba, which he views as friendly to his government.

His opponents say the president, who Thursday threatened to close hostile private television channels and take over banks which joined the strike, is ruling like a dictator. They accuse him of trying to install Cuba-style communism in Venezuela.

The polarized positions and increasing outbreaks of violence have added urgency to international peace efforts.

CLASHES BETWEEN PROTESTERS

Police said a grenade exploded Thursday near the pro-Chavez rally in Caracas, killing one man and wounding 15. At least six people have died in shootings and clashes between rival protesters since the opposition strike began on Dec. 2.

Anger and frustration have also been stoked by shortages of gasoline and some food items caused by the shutdown, which has closed many private business, shopping malls and franchises.

Carter, who won the Nobel Peace Prize last year, is proposing two options: one for an amendment to Venezuela's constitution to trigger early elections and the other for an Aug. 19 referendum.

Chavez has already said he is willing to abide by the result of the binding revocatory referendum on his rule which the constitution foresees after Aug. 19, half way through his current term due to end in early 2007.

He has also agreed to the constitutional amendment proposal provided that it follows the correct legal procedures.

But his foes say they do not trust him and that the crisis-hit country cannot wait until August for elections.

Chavez, who was elected in 1998, has proved many pundits wrong by resisting the crippling strike for so long.

"Time ticks on and weeks go by and, if anything, the opposition is showing signs of weakness," Arturo Valenzuela, Director of the Center for Latin American Studies at Georgetown University in Washington, told Reuters. (Additional reporting by Patrick Markey)