LATIN AMERICAN MARKETS: Stocks In The Red; Investors Eye Big Rate Cut In Brazil

By Carla Mozee

Latin American equities were mostly lower on Friday, tracking declines on Wall Street where job losses in the U.S. continued to climb last month.

Brazilian shares lost their grip on earlier gains, although anticipation grew for a big interest rate cut in the wake of poor industrial production figures. The Bovespa was off 0.7% to 37,096.74.

In Mexico, the benchmark equity index slid 0.8% at 17,224.42, with shares of Cemex SAB (CX) off more than 5% and extending losses from the prior day on concerns about the cement maker's planned issuance of bonds.

Equities in Mexico on Friday had been halted for about half an hour because of a technical problem on the exchange.

In Argentina, the Merval rose 1.8% to 962.55 and Chile's IPSA fell 0.5%.

On Wall Street, the S&P 500 Index slumped 1.5% to 672.82 and the Dow Jones Industrial Average fell 1% to 6.525.

Investors in regional markets and on Wall Street examined a report from the U.S. Labor Department that the economy lost 651,000 jobs in February, pushing the unemployment rate to its highest in more than 25 years, to 8.1%. The government also revised higher the number of losses seen in January and December.

"From an employment perspective, this is already the deepest U.S. recession since 1958 and we've yet to see the pace of job losses slow," wrote economist Benjamin Reitzes at BMO Capital Markets on Friday.

In Brazil, industrial production for January rose 2.3%, compared with the 12.4% decline in December, said the Brazilian Census Bureau. The January figure was considerably below the consensus estimate for a rise of 8.5%, according to Itaú Securities.

The year-over-year contraction was 17.2%, the worst showing since February 1991. In December, the year-over-year decline was 14.8%.

In afternoon trades, the iShares MSCI Brazil Index Fund (EWZ), an exchange-traded fund, fell 0.9%.

The industrial production report arrived before Brazil's central bank meeting on Tuesday and Wednesday, and market professionals have held to their outlook for a cut in the Selic rate, which currently stands at 12.75%.

A Dow Jones Newswires survey of 18 analysts released Friday shows that 15 of them foresee a rate cut of 100 basis points, or a full percentage point. Such a move would match the size of the bank's rate cut in January.

Win Thin, senior currency strategist at Brown Brothers Harriman, said the risk for a larger cut is rising and now expects policymakers to slash the rate by 150 basis points to 11.25%. A cut of that size occurred in 2003, said Thin in a note Friday.

"While inflation remains stubbornly high, we think the focus of policy-makers is firmly on avoiding a deep downturn," he said.

Brazil's currency, the real, weakened after the report, and was off 0.3% at 2.374 versus the U.S. dollar from Thursday.

Shares of interest-rate sensitive banks were higher. Federally run Banco do Brasil was up 1.4%, Banco Bradesco (BBD) and Unibanco (UBB) each rose 0.8% and Itau (ITU) rose 1.4%.

Meanwhile, shares of Petrobras (PBR) turned lower, down 1.8%. The oil giant is slated to post fourth-quarter earnings Friday evening, and analysts expect a decline because of lower oil prices.

Regional indexes were heading for weekly losses ranging between 3% and 5%.