sg.biz.yahoo.com Tuesday March 4, 2:00 AM By Mike Esterl Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--U.S. stock and bond prices continue to part ways, but the divergence is proving far more dramatic in emerging markets.

Emerging market debt gained 3.6% in February, according to the J.P. Morgan Emerging Markets Bond Index Plus, pushing year-to-date returns to 5.5%. That easily outstrips profits posted in the U.S. sovereign debt market, which advanced 1.7% last month and is up 1.4% so far in 2003, according to the Lehman Brothers U.S. Treasury Bond Index.

Investors in emerging market equities, by contrast, had a rougher February than their domestic counterparts in the U.S. After a mild downturn in January, emerging market stocks fell 3.2% in dollar and local currency terms last month, worse than the 1.7% decline in U.S. equities, according to Morgan Stanley's MSCI index.

The latest data show that heady profits - and losses - are being booked in the volatile asset class again this year even as many global investors stick to the sidelines amid uncertainty over whether the U.S. will invade Iraq.

Market participants say the Iraqi overhang is stoking fears of another U.S.-led economic downturn amid a low-inflation environment, which is good news for bonds but bad news for stocks.

"The concern is about somewhat weaker growth. The concern is not about solvency," said Jose Barrioneuvo, head of emerging market strategy at Barclays Capital.

Brazilian bond prices, which plunged last year amid mounting solvency fears after neighboring Argentina defaulted on most of its $141 billion in public debts at the end of 2001, are rallying sharply this year, with bondholders posting a 7.5% return in February and 13% so far in 2003, according to J.P. Morgan's EMBI+.

Brazil's solvency concerns have been put on the back-burner in recent months, after the country secured a $30 billion emergency loan package from the International Monetary Fund last August. The new government has meanwhile been busily raising interest rates and preaching fiscal austerity since taking office Jan. 1 - all of which tends to stunt economic growth in the short term but is good for paying the bills.

Not surprisingly, investors in Brazilian equities aren't having as much fun as their fixed-income peers. The country's stocks dropped 4.1% in February and are down 8.1% in dollar terms so far this year, according to Morgan Stanley's MSCI. The numbers aren't much better in local currency terms, with prices in reals down 3.0% in February and off 7.3% in the year to date.

Emerging market stocks, hundreds of which trade on the New York Stock Exchange and Nasdaq, often take their cue from U.S. equities. Major U.S. stock indexes have posted three straight years of declines, casting a big shadow globally.

But while initial public offerings of emerging market shares have dried up since the Nasdaq bubble burst in early 2000, sovereign debt issuers continue to find a market. Mexico has issued $3 billion in sovereign debt in U.S. capital markets so far this year, and several smaller Latin American countries have also been able to issue new debt in January and February after a busy December.

In a survey of its emerging market fixed-income clients published last week, J.P. Morgan said cash balances fell to 3.1%, below a historic cash balance of 4.2%.

Even with Iraq-related uncertainties keeping investors generally wary, many global bond players are having a tough time turning down juicy yields at a time when U.S. Treasury spreads have narrowed to their lowest levels in decades.

Despite strong recent gains, emerging market bonds as a group are still trading at around 700 basis points above U.S. Treasurys. That means an investor can play it safe and earn a yield of less than 4% on 10-year Treasurys or take a chance on comparably dated emerging market paper that's paying close to 11%.

Nigerian bonds rallied 7.6% in February - the top performer in the EMBI+ - but still trade at a little more than 1500 basis points above Treasurys. The African country, which signaled last year it might skip some debt payments but stayed current in the end, is a major producer of oil, a hot commodity these days.

Anton Pil, head of fixed-income at JPMorgan Private Bank, said some investors are also viewing the U.S. corporate bond market as too pricey after debt spreads recently rallied to their tightest levels in half a year - providing further impetus for inflows into emerging market debt.

"I would expect to see that continue unless there's another significant increase in risk aversion, which isn't evident right now," said Pil, whose group advises high net-worth individuals.

As in the U.S., the disparity between the performance of bonds and stocks in emerging markets has a bit of a history. Emerging market bonds returned a whopping 14% last year, according to the EMBI+. Emerging market stocks, by contrast, dropped 8.0% in dollar terms and 9.1% in local currency terms in 2002, according to the MSCI.

Allan Conway, an emerging markets portfolio manager at WestAM, says his fund shifted some of its Brazilian equity allocations into debt last year to take advantage of attractive bond valuations.

WestAM remains cautious on Brazilian equities. But it continues to see interesting opportunities in the country's bonds, as President Luiz Inacio Lula da Silva toes a tight fiscal line and Brazil's ratio of debt to gross domestic product slips back below 60%.

"It's certainly not inconceivable seeing spreads contract by another 100 or 200 (basis points) if (Lula) keeps doing the right things," said Conway, who's based in London.

Brazilian debt was trading hands at 1163 basis points over U.S. Treasurys on Monday, according to the EMBI+.

-By Mike Esterl, Dow Jones Newswires; 201-938-4026; mike.esterl@dowjones.com

www.catholicnews.com

MIAMI (CNS) -- The people of Venezuela are suffering under the government of President Hugo Chavez, and the Catholic Church is suffering along with them, according to Archbishop Diego Padron Sanchez of Cumana. The Venezuelan archbishop, in Miami for a continental congress on catechesis, commented on the political unrest in his homeland during an interview with The Florida Catholic, Miami archdiocesan newspaper. "We do not even have the freedom to express ourselves," Archbishop Padron said, referring to the curtailing of civil liberties. The church has been the object of "rejection, of strong criticism. Offenses have been committed. Right now, it tends to be marginalized. We do not matter," the archbishop said. Government funding for Catholic schools and charitable agencies arrives late and often is less than what had been agreed upon, he said. But it is the people who are truly suffering, the archbishop said. Violence and corruption have increased and jobs have disappeared, to the point that fewer than 20 percent of the people currently support Chavez.

abcnews.go.com March 4 — By Carlos DeJuana

RIO DE JANEIRO, Brazil (Reuters) - Rio de Janeiro's famed Carnival parade came to a close at dawn on Tuesday after tons of body glitter and 20 hours of samba dazzled millions of viewers in Brazil and beyond.

Under threat from drug gangs that terrorized Rio last week, the two-day competition between 14 samba schools took place under its heaviest security yet as 3,000 army troops were called in to back up 30,000 police safeguarding the city.

It was the first time the army had to be deployed to help keep the city safe during the annual bash, an anything goes farewell to sin that ushers in the 40 days of Lent.

But the military presence did little to spoil the globally broadcast party, which was expected to draw nearly 400,000 out-of-town visitors, including 40,000 foreigners.

"You don't think you're going to make it, and then you hear all those people screaming and you get another burst of energy and just keep going," said Larry Karpen, a 34-year-old New Yorker who spent $125 to don a costume and parade before 70,000 cheering fans in Rio's massive "Sambadrome" stadium.

Decked out in elaborate, shimmering costumes, or as little as possible to avoid breaking the no-nudity rule, thousands of revelers in each samba school parade down a 700-yard (635 meter) runway backed by a thundering drum section and giant floats.

Each group is made up of about 4,000 people, many of whom have spent months rehearsing, and has 80 minutes to finish the course. They are judged on criteria including music, percussion, costumes, floats, originality and enthusiasm.

SOCCER AND VIOLENCE

This year's themes ranged from Brazil's African roots to its other national pastime, soccer. The Beija-Flor school used the event to denounce the poverty and violence rife in Brazil.

Beija-Flor's floats depicted smoky visions of hell, a violent car-jacking, hungry prisoners in squalid jail cells and, at the end, a massive likeness of Brazil's popular new president, Luiz Inacio Lula da Silva, who has promised to fight hunger and bridge the country's gaping income disparities.

"What we're telling is the story of humanity, and to do that we have to talk about what's going on in Brazil," said Beija-Flor's director, who is known simply as Laila.

Although purists complain Carnival has become too commercial as companies sponsor schools in exchange for what they say are ads disguised as samba themes, those who take part in the parade swear it is a one-of-a-kind experience.

"It was my first time but it won't be my last. I adored it," gushed Thais Nogueira, a 23-year-old drag queen and "Miss Gay Brazil" who paraded with the Unidos da Tijuca school.

The winning school will be announced on Ash Wednesday, when the festivities across the country officially come to a close.

Like every year, some sporadic violence flared up outside the Sambadrome and in the block parties that take place across a city as known for its crime as it is for its natural beauty.

Six people were shot and one was killed by police outside the stadium on the first night of parades after thieves swept through the area and assaulted passers-by. But police said the second night went off without any reported problems.

Over the weekend, an American tourist was shot in the leg while being mugged, but has already left the hospital.

Still, the incidents were a far cry from the coordinated attacks that rocked Rio last week, when drug gangs torched buses, set off firebombs and shot at police. Eleven people died in the violence.

Hoping to keep the city safe even after the tourist hordes go home, Rio's state authorities have asked that army troops remain in the city until month's end.

"People are scared, and they see an extra protection in the troops," said Jose Quintal, Rio's state security chief. (Additional reporting by Todd Benson)