Brazil stocks slip with Wall Street, real firms

Reuters, 03.31.03, 5:19 PM ET SAO PAULO, Brazil, March 31 (Reuters) - Brazilian stocks fell on Monday, tracking losses on Wall Street prompted by investor fears of a protracted U.S.-led war in Iraq, but the currency firmed on expiration of futures contracts, traders said. The real strengthened to 3.355 per dollar from Friday's close of 3.361, capping the biggest monthly retreat by the U.S. currency on the local market since August despite concerns the Iraq war would slow a global recovery and a worsening inflation outlook at home. But the Sao Paulo Stock Exchange's benchmark Bovespa <.BVSP> did not resist the Wall Street drag and closed 1.1 percent weaker at 11,273.6, although it rallied 9.7 percent in March and now stands level with where it began the year. "Almost all the stocks are down on the concerns about the war and people think the (U.S.) strategy was poor and the coalition has stopped because of lack of supplies. It could last longer than expected," said John Carioba, an asset manager at Indusval brokerage. On the Bovespa, the losers outweighed gainers by 42 to 12. Empresa Brasileira de Aeronautica (Embraer) <EMBR4.SA> (nyse: ERJ - news - people), the world No. 4 civilian aircraft manufacturer, stood out with a 3.7 percent gain to 9.77 reais on hopes U.S. Airways Group Inc. <UAWGQ.OB> would emerge from bankruptcy and make an order for the Brazilian company's small and medium-sized jets. A spokesman for the airline said it planned to order 50 50-seat jets and 50 70-seat jets from Embraer or Canada's Bombardier <BBDd.TO>. The orders, which may be split between the manufacturers, would be very welcome news after a slump in the global aviation industry since the Sept. 11, 2001 attacks. Steelmaker Usiminas <USIM5.SA> also firmed 2 percent to 9.16 reais after impressing the market with strong cash flow in its annual results even though its overseas debt dragged its bottom line into the red for the year, traders said. The real was boosted early as bulls outpaced bears in the usual end-month tussle for expiration of futures contracts, traders said. The real has firmed 5.6 percent this year. Traders said the markets would be focusing this week on a Congressional vote to amend article 192 of the constitution that deals with Central Bank autonomy as a test of the center-left government's ability to make good on its pledges to push through reforms. "If it doesn't pass it shows that this government does not have the power they claim to have and won't be able to pass any of their proposed reforms," Carioba said. The optimism of investors, particularly large overseas banks and brokerages, that President Luiz Inacio Lula da Silva can push through reforms has helped buoy the Bovespa and real this month despite high inflation. The Central Bank increased its forecast for inflation in 2003 to 10.8 percent in its quarterly inflation report from 9.5 percent in the last report after strong consumer prices in the first couple of months of the year. Traders said the market had already priced in such a move.