LATIN AMERICAN MARKETS: Brazil Drops; Mexico Hurt As Cemex Shares Slide

By Carla Mozee

Latin American equities were hit hard Wednesday, with Mexico's benchmark pressured by a drop in Cemex SAB shares following the cement maker's weaker-than-expected results, and after an surprise drop in U.S. home sales stoked worries about economic recovery prospects.

Mexico's IPC fell 1.8% to 28,771 while Brazil's Bovespa was slammed 3.2% lower, but losses in Latin America's two largest equity markets were able to recover from deeper declines.

The Merval index in Argentina slumped 4.6% and Chile's IPSA fell 1.2% to 3,330.

Mexico's Cemex (CX) shares slid more than 9% earlier in the session before moving to a 5% decline. Desarrolladora Homex (HXM) tumbled 9.7% after the home builder posted a 28% rise in third-quarter net earnings to 447 million pesos on a sales rise of 8.2% to 5.11 billion.

On Wall Street, the S&P 500 Index (SPX) dropped 1.6% and the Dow Jones Industrial Average (DJI) fell nearly 90 points to 9,793 following mixed economic reports released from the U.S. Commerce Department.

Orders for U.S.-made durable goods rose 1% in September, but U.S. new-home sales unexpectedly fell 3.6% in September, the first decline since March. Economists had expected sales to rise to 438,000, aided in part by a tax credit for first-time home buyers.

Among investors in emerging markets "there's a lot of uncertainty on the U.S. data front," said Alvise Marino, an emerging markets analyst at IDEAglobal in New York.

"There's concern about the way the market has appreciated vis-Ã -vis still weak fundamentals and what's going to happen on the [interest] rate front," ahead of Thursday's third-quarter report on gross domestic product and reports next week about inflation and employment.

"The reason they care is based on the carry trade. We've seen since the second quarter a surge in carry-trade strategies and, unlike what we've seen in 2007 and 2008, this tends to be dollar funded," said Marino.

The dollar carry-trade further pressures the U.S. currency, whereby investors borrow dollars at near-zero interest rates to invest in higher-yielding assets.

If the upcoming U.S. data surprises on the upside, "there are expectations that this will lead the Fed to hint at coming tightening," he said, adding that he expects the U.S. to report GDP growth of 3.5%.

Back in Latin American markets, only shares of Brazil's Cosan (CZZ) moved higher on the Bovespa, with shares of the sugar and ethanol producer up 2.5%.

Oil giant Petrobras (PBR) shares dropped 3.5% and mining giant Vale (RIO) fell 3.8% ahead of its quarterly results due late Wednesday.

In Mexico City, Homex said its earnings before interest, taxes, depreciation and amortization increase by 4.3% to 1.18 billion pesos.

"With Ebitda coming in line but working capital showing some deterioration we believe [third-quarter] results could be a short term negative for the shares," Credit Suisse analyst Vanessa Quiroga wrote in a note to clients.

The broker added it still has a positive view on the company towards next year, in part as it expects Homex to continue posting higher-than-average growth.

Concerning Cemex, the world's third-largest cement supplier said late Tuesday that its third-quarter net earnings fell to $121 million from $200 million in the year-ago period on a slide in revenue, citing lower volumes primarily from its operations in the U.S. and Spain as reason for the lower sales result. The company also lowered its forecasts for pretax earnings and free cash flow for the year, but said it will be able to cover its debts through 2011.

Revenue slid 27% to $4.2 billion and Ebitda dropped 38% to $806 million.

Analysts polled by Dow Jones Newswires expected Cemex to post net earnings of $158 million, Ebitda of $811 million and sales of $4.3 billion.