LATIN AMERICAN MARKETS: Selling Pressure On Mexican Stocks, Peso Cools

By Carla Mozee

Mexican stocks edged lower Tuesday, but sharp selling pressure from swine-flu worries has subsided as investors rooted through shares battered in the previous session.

Mexico's IPC equity index slipped 0.3% to 21,760.49. On Monday, the index fell 3.3%, its biggest loss in nearly a month.

The drop in the market on Monday "was more subdued than might have been feared" after the IPC's run-up since hitting lows in early March, said Citigroup Latin American strategist Geoffrey Dennis in a note to clients on Tuesday.

"Therefore, it seems that investors, far from panicking, have used these tragic circumstances to lighten positions," he wrote.

The death toll from the swine flu has now reached 152 in Mexico, and the World Health Organization raised its alert level on the disease and said containment of the outbreak wasn't feasible.

Economists said a severe swine flu outbreak would amplify the effects of the global economic downturn.

Air carriers, which suffered the steepest falls on Monday, were recouping some lost ground. Grupo Aeroportuario del Centro Norte (OMAB) gained 6.6% as the company reported better-than-expected first-quarter earnings of 38 pesos a share (21 cents). Its shares dropped 13% on Monday.

Grupo Aeroportuario del Pacifico (PAC) shares were up 3% after Monday's 11% stumble.

Mexico's currency was up 0.2% following a more than 4% sell-off in Monday's session.

Still, Citigroup remains underweight in Mexican equities and said it's "too early to buy" the market back.

"As Mexicans and potential travelers stay home to avoid contagion, the most obvious impact will be on tourism, restaurants, entertainment and retail," said Dennis. "Exporters may benefit from a lower peso assuming factories continue to operate."

Shares of retailer Wal-Mart de Mexico (WMMVY) rose 0.9%, brewer Grupo Modelo advanced 3% and discount retailer Comerci gained 4%.

But telecom and manufacturing stocks still struggled, with conglomerate Grupo Carso off 2.1%, and America Movil (AMX) off 1.4% ahead of its results, and steel producer Grupo Simec (SIM) down 0.4%.

Brazil slips

In Sao Paulo, a decline in steel stocks helped pull the Bovespa equity index down 0.8% to 45,472.96. The index dropped 2% on Monday.

Shares of Companhia Vale do Rio Doce (RIO) fell 1.6% after the company said first-quarter iron ore output fell 37% to 46.86 million metric tons from the same-period a year-ago as it faces "unprecedented weak demand conditions derived from the sharp decrease of global industrial production."

On a quarter-over-quarter basis, production fell 25.9%.

Vale said in a statement that production is being managed "in line with its assessment of market conditions prevailing in the short-term."

Shares of steel maker Gerdau (GGB) fell 1.7%, Usiminas declined 2% and CSN (SID) lost 1.4%.

Investors in the steel market also assessed as report from United States Steel (X) late Monday reported a bigger-than-expected quarterly loss and slashed its dividend by more than 80%.

Shares of meat producers were mixed. JBS, whose shares slid 12% a day ago, were up 2.6%. Sadia (SDA) shares in most recent action were down 6.4% after Monday's climb of 7.8%, and Perdigão (PDA) gained 1.8%.

Banking stocks were higher ahead of the Brazilian central bank's decision on interest rates Wednesday. Market players currently expect policymakers to cut the benchmark rate by at least 100 basis points from the current rate of 11.25%. Such a move would leave the rate at its lowest level since the Selic was established in 1996.

Itau Unibanco (ITU) rose 1.7%, Bradesco (BBD) gained 1% and Bando do Brasil rose 1.6%.