CORRECTED - Brazil stocks choppy,currency ticks up,Iraq weighs

www.forbes.com Reuters, 01.31.03, 10:56 AM ET

In SAO PAULO story headlined, "Brazil stocks choppy,currency ticks up,Iraq weighs," please read in paragraph 14 "...It announced on Friday it did not make an $85 million payment..." instead of "...it made an $85 million payment..." Corrects to show Eletropaulo did not make payment.

A corrected version follows.

SAO PAULO, Brazil, Jan 31 (Reuters) - Brazil's stock market hovered near break even in volatile trade but the currency ticked slightly higher on Friday amid ongoing worries about the financial impact of a U.S. war on Iraq.

Traders said signs inflation was slowing had helped boost markets early in the morning, but the increasingly likelihood of war in the Middle East continued to haunt investors.

"The market isn't being very consistent," said Alvaro Bandeira, head of Agora Senior brokerage.

"The possibility of war is always in the background, but we have some good news in the meantime, like the IGP-M (inflation index) which came out well."

The IGP-M index slowed for the second month in a row on January, bolstering hopes the spike in prices seen late last year may be easing.

The Sao Paulo Stock Exchange's benchmark Bovespa <.BVSP> index was 0.05 percent lower at 10,745 points near noon after opening on the upswing on Friday.

The Bovespa rallied earlier in the month as investors grew more confident President Luiz Inacio Lula da Silva would not steer the economy into a hole, as feared by some before his election in October.

Indeed, investment bank Morgan Stanley raised its recommendation on Brazilian bonds to outperform from market perform on Friday amid optimism Lula will have congressional support to pass reforms to modernize the antiquated pension and tax systems.

But worries the outbreak of war will scare investors away from emerging markets such as Brazil has plunged the index back into the red for the year.

Brazil's currency, the real, has also lost the gains it made this month and is near flat for the year so far. On Friday it was 2.2 centavos firmer at 3.542 per U.S. dollar, giving stocks a lift as well. "The more agonize over how long before a decision on the war takes, the more turbulent the market is going to be," said Luiz Roberto Monteiro, head of equities trading at Souza Barros brokerage in Sao Paulo.

He said the market would be especially keen to see the reaction to U.S. Secretary of State Colin Powell's presentation before the United Nations on Wednesday. Powell is expected to present evidence that Iraq is hiding weapons of mass destruction and has ties to al Qaeda to strengthen the United States' case for war. On the home front, ordinary shares for Embratel were up 3.1 6 percent at 4.25 reais.

Shares for energy company Eletropaulo <ELPL4.SA> were also propping up the market with a 1.35 percent rise to 26.35 reais. It announced on Friday it did not make an $85 million payment to Brazil's BNDES development bank.

But market bellwether Tele Norte Leste Participacoes (Telemar) <TNLP4.SA> was weighing on the market with a 0.38 percent dip to 26.40 reais. Its shares account for about 13 percent of the index.