LATIN AMERICAN MARKETS: Mexico, Brazil Stocks Hit On Europe Debt Fears

By Carla Mozee

Major Latin American stock markets dropped Friday, with the sell-offs in line with a slide on Wall Street as investors remain shaken by the prospect that global economy recovery will be hurt by Europe's debt troubles.

Brazil's Bovespa index fell 2.1% to 63,412.47. Argentina's Merval lost 3% to 2,247.77, and Mexico's IPC gave up 1.6% to 31,812.73.

Chile's IPSA fell 0.9% to 3,839.42. Late Thursday, Chile's central bank held its key interest rate at 0.5%, as expected, but policy makers indicated that it's considering a rate hike.

Friday's declines didn't prevent the major stocks indexes from posting weekly gains. The Bovespa rose 0.9% and the IPC rose 1.2%. The Merval advanced 4.1% and the IPSA rose 0.2%.

Among exchange-traded funds, the iShares Brazil Index Fund (EWZ) fell 2.7% on Friday, and the iShares Mexico fund (EWW) lost 2.8%. The iShares Chile fund (ECH) gave up 2.5%.

As investors fled assets they perceive as risky, the currencies of Brazil, Mexico and Chile dropped against the U.S. dollar. Meanwhile, the euro hit its lowest level against the dollar since 2008. The euro's drop was sparked by a report -- that has since been denied -- that France's president had threatened to pull his nation out of the euro zone.

Earlier this week, the European Union and the International Monetary Fund created a nearly $1 trillion financial-aid package for vulnerable euro-zone nations. Greece last week approved austerity measures, followed by steps announced this week in Portugal and Spain.

"But, while Greece is the most profligate of EU members, it is not alone in its predicament as markets have punished Portugal, Italy, Ireland and Spain as well," wrote Sherry Cooper, chief economist at BMO Capital Markets, wrote in a note distributed Friday.

"The required fiscal contraction needed to reduce these longer-term structural deficits will bludgeon economic activity, exacerbating the deficit problem over the near term," she wrote.

In Sao Paulo, Petrobras (PBR) shares shook off losses to close up 0.3% although crude oil for June delivery tumbled 3.8% to below $71.61 a barrel on the New York Mercantile Exchange.

The state-run oil giant is slated to release its results for the first quarter late Friday. Earnings are expected to climb 19% to 6.93 billion reals, according to a Dow Jones Newswires poll of analysts.

Other resource-related stocks were hit as dollar-denominated prices for commodities fell amid strengthening in the greenback. Brazilian steel maker Gerdau (GGB) lost 2.6% and Usiminas fell 4.5%.

In Buenos Aires, locally traded shares of Petrobras fell 3.2%. Petrobras Energia (PZE), the Argentina-based unit of Petrobras, dropped 2.6% and steel producer Siderar (ERAR.BA) fell 4.5%. In Mexico City, shares of copper miner Grupo Mexico lost 1.3%.

Outside of resource-related stocks, shares of Mexican telecom services provider Axtel fell 3.4% in the wake of a downgrade by Fitch Ratings.

But shares of Mexican tortilla producer Gruma (GMK) were among the few advancers in Friday's session. The shares rose 0.3%. On Thursday, they dropped 6.6% when Venezuela took over Gruma's unit in the country. '