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 subsided as investors rooted around for shares battered in the previous session.

Mexico's IPC equity index fell 0.8% to 21,662.53. On Monday, the index slid 3.3%, its biggest loss in nearly a month.

Monday's drop in the market "was more subdued than might have been feared" after the IPC's run-up since hitting lows in early March, said Citigroup Latin American equity 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. Also, 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, regained some lost ground. Grupo Aeroportuario del Centro Norte (OMAB) rose 5.2% 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 advanced 3.4% after Monday's 11% stumble.

Mexico's currency rose 0.9% to 13,835 pesos per U.S. dollar. The currency sold off more than 4% in Monday's session.

The iShares MSCI Mexico Index Fund (EWW) slipped 0.3% following Monday's tumble of 7.2%.

Citigroup said it remains underweight in Mexican equities and that it believes 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 1.8%, brewer Grupo Modelo advanced 3% and discount retailer Comerci gained 3.4%.

But telecom and manufacturing stocks still struggled, with conglomerate Grupo Carso down 3.7%, America Movil (AMX) down 1.4% ahead of its results, and steel producer Grupo Simec (SIM) off 2.6%.

Brazil slips

In Sao Paulo, a paring of losses among steel stocks and a turnaround in shares of Petrobras (PBR) for a 0.5% rise helped pull the Bovespa out of negative territory. It equity index ended up 2 points at 45,821.44. It dropped 2% on Monday.

Shares of Companhia Vale do Rio Doce (RIO) gave up 0.7% 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 1.1%, Usiminas declined 1.6% and CSN (SID) shed 0.1%.

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, rose 2.1%. Sadia (SDA) shares fell 3.4% after Monday's climb of 7.8%. Rival meatpacker Perdigão (PDA) gained 2.1%.

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 2.2%, Bradesco (BBD) gained 1.1% and Bando do Brasil rose 1.3%.

Chile's IPSA ended 0.4% at 2,671.62 and Argentina's Merval rose 0.1% at 1,218.65.