By Bradley Brooks <a href=www.upi.com>UPI Business Correspondent From the Business & Economics Desk Published 4/8/2003 2:35 PM

RIO DE JANEIRO, Brazil, April 8 (UPI) -- Bombs fall in Baghdad, bonds rise in Brazil?

To the surprise of many Latin America watchers, the region's biggest economies -- forecast to be among the globe's hardest hit by a war in the Middle East -- have seen a resurgence in activity.

Spreads on bonds -- a measure of investor confidence -- have narrowed, local currencies are rising against the dollar, and in some cases there have been rallies in equities since the Iraq war began March 20.

Emerging market bond funds took in $948 million -- a record inflow -- in the first quarter of this year, according to a recent report by Emerging Portfolio.com, which tracks 171 dedicated emerging market bond funds globally.

That translates into an 11.4 percent gain in total assets for those funds in the first quarter, and Brazil has been right at the top in attracting investors, analysts say.

"In the inevitable emerging market portfolio manager's search for valuations, Brazil certainly looks compelling," said Brad Durham, research director at Emerging Portfolio.

"It is the (lowest) valued emerging market in the world, at about five-times the forward looking price to earnings ratios."

The biggest reason Latin America is faring well during a time of conflict is that the expected sharp rise in oil prices briefly came and went once coalition forces secured oil fields in southern Iraq, analysts say.

Brazil and Chile, South America's biggest and its most stable economy, respectively, were thought to be most vulnerable to a spike in crude prices. Both have chugged along nicely since.

Additionally, analysts say that while it might be early to sound the all-clear, risk aversion on the part of emerging-market investors hasn't risen too much since the war began.

"It's related partly to a long period of neglect by investors," said Durham.

The Economic Commission for Latin America and the Caribbean, or ECLAC, a U.N. think-tank, said Tuesday foreign direct investment in the region dropped for the third year running in 2002.

Investment plunged 33 percent of $56.7 billion, down from $84 billion in 2001, ECLAC noted. The net inflow of FDI into Latin America was less than 2 percent of gross domestic product.

ECLAC -- which didn't include in its report a forecast for 2003 -- blamed the weak FDI on a global fall in equities, as well as the political troubles in Argentina, Venezuela and in the run-up to Brazil's election last October.

While unstable equity markets shouldn't necessarily have a damning effect on the region's bonds, when it comes to emerging markets, investors tend to generalize between asset sectors, analysts say.

That plays into the investor neglect Durham notes.

Brazil, he says, is an extremely high-beta country, meaning that when emerging markets are up globally, it outperforms them, and when markets are down, it falls harder than the rest.

"But I think sentiment has been so bad for so long for Brazil that it may be somewhat resilient in the current climate, if the government stays the course," Durham said.

Attractive bond yields have won out over potential turbulence in the eyes of investors socking money into Brazil.

The country's benchmark bond due 2014 has seen its spreads over U.S. Treasurys drop to 900 basis points of late as investors take heart in the new government's austerity.

Which has been a rather quick turnaround for Brazil, which late last year had a higher country-risk rating than Nigeria.

Even in Argentina, still trying to recover from its default in December 2001, bond spreads have dropped by 10 percent since the war began in Iraq.

Investors there have been pushed by apparent progress on salvaging the country's banking sector and signs that Argentina is finally talking about re-scheduling its defaulted debt with foreign bond holders.

Further cheering sentiment in Argentina has been the final lifting of controls that saw citizens' bank accounts locked away from them for more than one year.

That has resulted in a Argentine peso dipping below 3 to the dollar for the first time in a year.

Brazil's Economy Minister Antonio Palocci tried to cool the optimism -- and thus the expectations -- saying Tuesday the new government has far to go before it escapes economic danger.

"What cannot be assumed is that the (austerity) measures we're going to take are no longer necessary, for example the tax and pension reforms," Palocci said.

"This is the risk, that we neglect our agenda."

Brazilian President Luiz Inacio Lula da Silva told citizens in an address on Monday that the austere measures being taken are painful, but ultimately worth it if they lead to economic stability and prosperity.

"We took tough measures which cost me sleep on quite a few nights: increase the interest rate and cutting spending. But the sacrifice so far has not been in vain," Lula said.

Posted: April 6, 2003 at 6:37 p.m.

CAMARILLO, Calif. (AP) -- Gas prices dropped six cents a gallon nationwide over the past two weeks, the first decrease in four months and the biggest two-week drop since October 2001, an industry analyst said Sunday.

Falling crude oil prices resulting from increased certainty about Middle East oil supplies contributed to the decrease, said analyst Trilby Lundberg.

The average price for gas nationwide, including all grades and taxes, was about $1.70 a gallon on Friday, according to the Lundberg survey of approximately 8,000 gas stations. That was a decrease of 6.03 cents from March 21, the date of the last Lundberg survey.

"Lower crude oil prices since mid-March resulting from reduced uncertainty about Middle East oil supplies are working their way down to the gasoline pump," Lundberg said.

Another factor was the completion of repairs and maintenance at refineries in advance of spring demand, Lundberg said.

It was the biggest two-week drop since the price of a gallon of gas fell 6.6 cents in late October 2001.

Lundberg said gas prices will likely continue to drop in the near term "because world crude oil supplies seem to be more secure now and because U.S. refiners are gearing up to supply plenty of gasoline."

Pre-war oil market jitters have been somewhat calmed because only a few oil fields have been set ablaze in Iraq and the fires were extinguished quickly, Lundberg said. In addition, Venezuela's oil industry has been recovering from a strike and is back to producing about two-thirds of its pre-strike level.

The price of a barrel of oil was $28.62 on Friday, down from $34.93 on March 17 -- the day President Bush gave Saddam Hussein 48 hours to leave Iraq or face war.

The national weighted average price of gasoline, including taxes, at self-serve pumps Friday was about $1.67 for regular, $1.76 for mid-grade and $1.85 for premium.

Tuesday, April 8, 2003 8:50:0 p.m By NEELA BANERJEE <a href=www.abs-cbnnews.com>The New York Times

The president of the Organization of Petroleum Exporting Countries (OPEC) called Monday for a special meeting later this month to discuss the recent slide in oil prices, which have fallen almost 20 percent since just before the war with Iraq began.

Speaking to reporters in Paris after meeting with French government officials, the OPEC leader, Abdullah al-Attiyah, who is Qatar's oil minister, said: “My main worry is how to deal with the dramatic price drop. The market is full of oil. It’s facing a glut, not a shortage.” He suggested a meeting on April 24 at the group’s headquarters in Vienna, Austria.

Since the beginning of the year, the Organization of the Petroleum Exporting Countries has gradually increased output above its official quotas to provide extra oil for global markets in the wake of a national strike in Venezuela and in anticipation of war in Iraq.

Oil prices remained stubbornly high for most of the winter, despite OPEC’s efforts, until the recent decline, caused largely by the expectation that a swift victory by US-led forces would quickly revive Iraqi oil exports.

To halt the fall in crude oil prices on world markets, OPEC may decide to rein in production, holding it at its official quota levels, industry analysts said. “They’re worried about a price slide,” said Leonidas Drollas, chief economist with the Center for Global Energy Studies, a London research group. “They will tell each other: ‘We must go down to our quotas. The crisis is over, prices are at $23 a barrel and we must act.”’

Drollas was referring to the cost of Brent crude oil on the International Petroleum Exchange in London, which fell as low as $23.40 a barrel Monday. On the New York Mercantile Exchange, the price of crude oil for May delivery closed at $27.96, down 66 cents.

Industry analysts said that oil prices may remain somewhat volatile for some time, given the political instability in several major exporting countries.

“How stable is the Venezuelan recovery?” said Vera de Ladoucette, senior director for Middle East research at Cambridge Energy Research Associates, voicing the worries that still prick at the market. “When will Nigeria be back? And when will Iraq will be back? We know there is no damage to Iraqi oil installations, but it takes time to bring that all back on stream.”

As it has increased production over the last few months to compensate for these problems, OPEC has worried that it could be creating a glut, de Ladoucette noted. And indeed, nearly all OPEC members are producing at their capacities, pumping a total of about 3 million barrels a day more than their official quotas, Drollas said.

Any change in output would probably not take effect until June or even July, said Lawrence Goldstein, president of the Petroleum Industry Research Foundation, mainly because OPEC members already have contracts with buyers for next month’s oil sales.

“You’re not talking about a faucet they will turn on or off,” Goldstein said.

In the meantime, the extra OPEC production is replenishing stockpiles of crude oil in the United States that were badly depleted by the fall in exports from Venezuela and the cold winter. Oil prices had been much more volatile until extra OPEC exports began arriving in the United States a few weeks ago and were then tallied in Energy Department estimates of oil inventories around the country.

Goldstein said, “We think that the worst is over as far as crude oil supplies go.”

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Salon.com By Bruce Stanley April 7, 2003  |  LONDON (AP) --

OPEC members plan an emergency meeting this month aimed at curbing runaway crude production to avert a possible price crash, a source at the producers' cartel said Monday.

Oil ministers at the Organization of Petroleum Exporting Countries have agreed to meet April 24 in Vienna, Austria. The meeting will take place whether or not the war in Iraq has ended, the source said, speaking on condition of anonymity from OPEC headquarters in the Austrian capital.

Most OPEC members have been producing at maximum capacity to keep world oil supplies plentiful during the war. However, oil ministers are increasingly worried that OPEC might be oversupplying the market just as demand starts falling to its seasonal low.

"There is some serious concern among some of the ministers that prices could be headed for a crash if they don't act quickly to stop the trend," the source said. "No one is talking about cutting production of course, but that would be the only feasible thing to do."

The group has decided not to wait until OPEC's benchmark price for oil falls below the group's minimum threshold of $22 a barrel.

"You don't wait for the crisis to happen. You act before," the source said.

Oil prices have fallen sharply since peaking at almost $40 a barrel on Feb. 27, before the outbreak of fighting in Iraq. May contracts of U.S. light, sweet crude fell to a low on Monday of $27.15 before bouncing more than a dollar on news of OPEC's planned meeting. U.S. crude for May delivery was trading at $28.12 by early afternoon in New York, still 50 cents lower than Friday's close.

In London, contracts of North Sea Brent crude for May delivery slipped as low as $23.40 a barrel before rebounding in the afternoon to $24.50, down 18 cents from Friday's close.

Only last month, OPEC signaled that it would pump more oil to make up for any supply disruption caused by hostilities in Iraq. Although members agreed in March to stick with their production target of 24.5 million barrels a day, some analysts say that rampant quota-busting has boosted OPEC's current output to around 27 million barrels a day.

Kevin Norrish, head of commodities research at Barclays Capital, said OPEC is right to be concerned about weak prices.

Saudi Arabia, the group's biggest member, has made "a massive increase" in output, while exports from Venezuela are growing steadily following the recent collapse there of a nationwide strike. Output in Nigeria is starting to recover from disruptions caused by social unrest, and Iraq will eventually resume production, Norrish said.

Demand typically falls in the second quarter due to declining sales of winter heating oil in the northern hemisphere. Demand for gasoline often doesn't pick up until the peak summer driving season.

This year, springtime demand is expected to fall more sharply than usual. With a wartime supply shortage looking unlikely, oil-importing countries will stop buying crude for their strategic reserves, Norrish said.

"I think OPEC is correct to identify the possibility of a sharp fall," he said. "They're being pre-emptive because once the market starts to get away from them it could be very difficult to bring it back."

If OPEC does nothing to cut production, Norrish predicts that U.S. crude futures will fall to $21.50 by June or July.

One item that won't be on the agenda for this month's meeting is how to reintegrate Iraq into OPEC's production-quota system. Iraq hasn't participated in the group's production agreements since the 1991 Gulf War because the United Nations has regulated its exports.

A postwar government in Iraq would almost certainly want to maximize crude exports to help pay for reconstruction. Such a policy would add further to global supplies unless other OPEC members, chiefly Saudi Arabia, agree to reduce their own quotas to make room for a resurgent Iraq.

This issue is potentially explosive, and the OPEC source said oil ministers have deferred trying to tackle it until at least June, when they plan to meet again in Doha, Qatar.

Reuters April 8, 2003: 7:44 AM EDT

LONDON (Reuters) - News Tuesday that OPEC may cut production to support its target of $25 oil countered the recent slide in crude prices, as U.S.-led forces battled in the Iraqi capital of Baghdad.

The 11-member Organization of Petroleum Exporting Countries is set to hold an emergency meeting April 24 to discuss output cuts after prices slumped 30 percent in the past month, threatening to dip below the group's $22-$28 preferred price range.

U.S. light crude for May delivery recovered from an overnight decline to trade up four cents at $28 a barrel, down from nearly $40 at the end of February, while London benchmark Brent blend for June delivery traded up six cents to $24.64. Brent hit a four-month low of $23.40 Monday.

"The market is supported by this talk that OPEC might cut production. This is the first we've heard from them for some time and it gives prices an excuse to retrace losses," said an IPE Brent broker from the London exchange floor. "The war is still a very bearish factor, but without OPEC I think the rug would be pulled out from under us."

OPEC, which controls 40 percent of global crude exports, has lifted production this year to cover supply losses from a two-month strike in Venezuela and to prevent any spike in prices if Iraqi crude exports were cut off by a U.S.-led war.

But prices have actually plunged by as much as a third since just before the war began 20 days ago, prompting cartel officials to start talking of a potential cut in production. Click here to check CNN/Money's commodities page

"Currently oil is in oversupply in the market. But we will see the development of the price," Indonesian Mines and Energy Minister Purnomo Yusgiantoro told reporters.

The lynchpin will be powerhouse Saudi Arabia, which had hiked output to a 21-year high in March to compensate for stoppages from Iraq, where U.N.-supervised exports of about 1.7 million bpd closed before the start of hostilities March 20.

A Gulf source familiar with Saudi officials said Tuesday OPEC was ready to keep prices near its target $25, but did not say whether it was considering a cut in the formal output ceiling, now at 24.5 million barrels per day, or remove excess output above that level, now running at two million bpd.

The war in Iraq remained a bearish factor for prices, as dealers looked forward to the return of Bagdad's supplies to world markets and the development of the country's massive reserves, second only to Saudi Arabia's.

A short-lived war may mean minimum damage to Iraq's oil infrastructure, allowing supplies to flow sooner.

U.S. tanks fought an intense battle with Iraqi soldiers in the heart of Baghdad Tuesday and officials said U.S. aircraft had dropped four 2,000 pound bombs in a residential area, specifically targeting Saddam and his sons Uday and Qusay.

The British army said it had taken control of Basra, Iraq's second city, while U.S. forces increased their presence in Baghdad.

Oil prices have also come under selling pressure as recent data on the U.S. economy have raised concerns that it may be heading into recession, which would choke demand for petroleum.