Brazil markets sag on Iraq, await rates decision
www.forbes.com Reuters, 01.22.03, 10:19 AM ET
SAO PAULO, Brazil, Jan 21 (Reuters) - Brazil's financial markets sagged on Wednesday as investors braced for the possibility of a U.S.-led war in Iraq and a resulting drop in interest in emerging markets.
On the home front, the market waited for the Central Bank to announce its first interest rate decision of the year. Most have been betting the 25 percent Selic benchmark rate would be held, but some said the odds had changed after the Central Bank relaxed 2003 inflation target on Tuesday.
"What will decide direction (of stocks) today is the exchange rate," said Gustavo Alcantara, a fund manager at Banco Prosper. "Furthermore, there is no longer a consensus on the maintaining the Selic rate at 25 percent."
The real
Most of the Bovespa was in the red. However, Portugal Telecom <PTCO.IN> mobile phone company's Telesp Celular Par. <TSPP4.SA> (nyse: TCP - news - people) gained.
Last week Brasilcel, a 50-50 Brazilian mobile phone venture owned by Spain's Telefonica Moviles <TEM.MC> and Portugal Telecom, said they would buy Brazilian rival Tele Centro Oeste (TCO) <TCOC4.SA> via Telesp Cel for $1 billion.
"The first impression was that it would raise Telesp's debt to $2 billion, but now people are thinking the buy is not so bad after all and for the medium-loner term it gives them a bigger area of operation," said John Carioba, director of Indusval brokerage. Telesp stock rose 1.8 percent to 4.04 reais.
But traders said the mood was poor as the United States looked ever closer to attacking Iraq while neighboring Venezuela's social unrest continued. Both crisis have raised oil prices which risks fueling an acceleration in inflation in Brazil by elevating transport prices.
Inflation spiked to a seven-year high of 12.5 percent in 2002 as a 35 percent depreciation in the real last year lifted fuel and other prices.
On Tuesday the Central bank easing its inflation targets to 8.5 percent for 2003 and 5.5 percent for 2004.