Brazilian stocks recover to finish firmer

16 Jan, 2005

Brazilian stocks recovered from early losses to end stronger on Friday on low US inflation data, while the local currency weakened slightly as the central bank purchased dollars. The stock market gained for the fourth straight day even though the country's most important price index rose more than expected in December, consolidating bets for a half-percentage-point rate hike by the central bank next week.
The IPCA broad consumer price index, which is used by the central bank to guide monetary policy decisions, rose 0.86 percent in December, faster than 0.69 percent in November, because of pressures from higher fuel and food costs. A Reuters consensus forecast put the rise at 0.79 percent.
The Bovespa index of the Sao Paulo Stock Exchange finished 0.48 percent higher at 24,924 points, recovering from early losses of more than 1 percent.
Helping support local prices was a lower-than-forecast result for the producer price index in the United States, along with options that expire on Monday. Signs of soft prices helped alleviate fears of aggressive rate hikes by the Federal Reserve that would drain away capital from Brazil.
Steel and mining stocks led gainers. Iron ore giant CVRD rose 3.55 percent to 67 reais.
Meanwhile, the local currency, the real, weakened 0.15 percent to 2.703 per US dollar. The central bank bought dollars yet again under a plan announced in December to rebuild scant foreign reserves.
The real was also pressured a bit by domestic inflation. The higher-than-expected result caused interest rate futures to rise, suggesting the market is betting on a rate hike to 18.25 percent from 17.75 percent at the central bank's monthly meeting on rates that concludes on Wednesday.
Still, external factors should continue to drive the real's direction next week.
"The relation between the euro and the dollar is forming the price here much more than internal flows," Jorge Knauer, head of currencies and Banco Prosper, said.

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