LATIN AMERICAN MARKETS: Bovespa Rises On Banks, Oil; Argentina Cut To 'frontier' Status

By Carla Mozee

Brazilian equities edged higher Thursday, with federally run Banco do Brasil registering gains after the company's quarterly earnings surpassed analyst expectations.

Helped by a rally in oil prices, Argentine equities remained higher after a key entity downgraded the country from emerging-market status, a move that underscored the country's fragile financial situation but was widely expected.

Brazil's Bovespa rose 0.7% to 39,965.83, putting it on pace for its first win in three sessions.

Ordinary shares of oil giant Petrobras (PBR) were up 3.6% to lead advancers. The company's more heavily traded preferred shares were 3% higher as crude-oil prices climbed 8%. Crude oil gained following a report that showed U.S. inventories unexpectedly fell for the first time in eight weeks.

The one-week decline "is not sufficient to turn this market around but it will scare the bears," wrote Morgan Stanley analyst Hussein Allidina in a note Thursday. "However, stocks remain bloated, refiners are going into turnarounds, and this week's stats will hurt cracks, limiting crude demand."

Shares of Banco do Brasil also ranked high among the session's advancers by gaining 2.6%. The company said its fourth-quarter profit jumped from the year-ago period on credit portfolio expansion and a one-time gain related to pension plan assets. Its net earnings climbed to 2.94 billion reals ($1.26 billion). Its loan portfolio rose 11.2% from the previous quarter.

Excluding the one-time gain, earnings would have been 1.6 billion reals, above the estimate of 1.5 billion reals by analysts polled by Dow Jones Newswires.

But shares of Gerdau (GGB) fell 1.1% after the steel maker posted a 67% drop in fourth-quarter profit to 311 million reals ($132.3 million) and said its results were hurt by the worldwide financial crisis.

Steel maker Usiminas also said demand was slowed because of global turmoil. The company reported a 14% decline in fourth-quarter profit to 837 million reals. Net revenue, however, rose 7% to 3.73 billion reals. Usiminas shares were up 1.4% in recent action.

Argentina, the next frontier

In Argentina, the benchmark Merval index rose 0.5% to 1,054.92, aided by a 4% jump in Buenos Aires-listed shares of Petrobras, and a 1.5% gain in shares of Tenaris (TS), whose steel tubes are used for oil and gas operations.

Earlier Thursday, MSCI Barra said it will downgrade Argentina to frontier-market status from emerging-market status in its indexes, citing the country's "continued restrictions to in- and outflows of capital" in the equity market.

Frontier markets, which include Sri Lanka, Vietnam, Lebanon and Kazakhstan, are smaller and considered riskier than emerging markets. The change will take place in May.

The expectation for the downgrade has been in place for the past four to five months, said Christian Reos, a Buenos Aires-based equity analyst at Allaria Ledesma & Cia., in a telephone interview.

"The market has already discounted the effect," and the arrival of the official announcement won't have much impact on what's already been happening in the market.

"Volume is very little now. It's not dead, but it's almost dead. We're in a quiet market," with shares of Petrobras and Tenaris dominating about 40% of the Merval index, Reos said. "Our index is very linked to the world, and the oil sector; it's not completely local."

Tenaris is headquartered in Luxembourg.

After recent changes to the lineup, the Merval now has just 14 constituents. The market has been rocked in recent months in the wake of the nationalization of private pension funds.

Reos said if an upswing in the oil markets firmly takes hold, the Merval has the potential for healthy gains this year. The Merval is down 1.2% so far in 2009. The MSCI Argentina Index is off 12% and the MSCI Emerging Markets Index has lost 9%.

Mexico's IPC rose 0.1% to 18,762.28 and Chile's IPSA rose 0.8% to 2,631.92.