WEEKAHEAD-Latam stocks shiver as U.S. war drums grow

www.forbes.com Reuters, 02.09.03, 3:04 PM ET By Nicholas Winning

SAO PAULO, Brazil, Feb 9 (Reuters) - Latin America's main stock markets are set for another choppy week as traders brace for a possible investor retreat if the United States goes to war with Iraq. "They just want confirmation about when it (war) is going to start and then after that we will probably see some more speculation about how long it is going to take and how it will affect capital flows to the region," said Aryam Vazquez, Latin American market analyst with IDEAglobal in New York. Stocks in Mexico and Brazil, the region's biggest economies, have been in the red for year and no recovery is seen until Iraq fears ease. Smaller markets in Chile and Argentina could creep higher, traders said. In BRAZIL, official inflation data on Thursday will be watched for clues about whether the Central Bank has space to ease its 25.5 percent interest rate. Independent data shows prices remain stubbornly high, and investors also fear high international oil prices could fuel price rises in Brazil. "Inflation will become a major issue because everyone was expecting it to come off in January and it hasn't happened," said Alvaro Teixeira, head of sales at Bradesco brokerage in Sao Paulo. Brazil's Bovespa <.BVSP> index fell 5 percent last week on Iraq war jitters. It stands almost 8 percent below where it began 2002 despite some market-friendly moves from the government of President Luiz Incaio Lula da Silva. The new government on Friday raised its budget surplus target to 4.25 percent of gross domestic product from 3.75 percent, a move some investors hailed as further proof of a commitment to fiscal restraint. In MEXICO, investors remain worried a war in Iraq would undermine the U.S. economy, the destination of 90 percent of Mexican exports and a major source of investment capital. The IPC benchmark stock index<.MXX> fell 1.5 percent last week, leaving it 4.3 percent weaker than where it began 2002. And Mexico's peso currency hit new closing lows despite a move by Mexico's central bank to tighten monetary policy to meet its ambitious 2003 inflation target of 3 percent. The bank on Friday posted January inflation of 0.40 percent, the smallest rise in prices for the month since record-keeping began in 1969. In CHILE, traders said the blue-chip IPSA index<.IPSA> could draw support from last week's positive U.S. labor data, although Iraq could ruin the mood. The IPSA firmed 1.3 percent last week, leaving it 1.5 percent ahead this year. "With U.S. stocks so weak for the last 10 days, we think the bourse could react positively to these data as long as there is no serious news about the conflict (in Iraq)," said Lorena Vasquez, an analyst with BCI brokerage in Santiago. In ARGENTINA, investors said stocks would creep higher, although the benchmark MerVal <.MERV> index has seen little action as players sought better short-term returns in treasury bills or fixed-term deposits. In late January the International Monetary Fund (IMF) approved a rollover of $6.78 billion in debt payments Argentina owes as the country fights a four-year recession that led to the world's biggest sovereign debt default and a fierce currency devaluation. The MerVal gained 2.7 percent last week, and now stands 7.6 percent higher than where it began 2002 as investors key into the presidential race ahead of the April 27 elections. "Little by little the market is consolidating higher ... while keeping a careful eye on local politics," said Mariano Arnau of Raymond James brokerage in Buenos Aires.