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Latin stocks sink
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June 24, 1999: 5:01 p.m. ET
Rate woes cause Brazil to tumble 3.1% as Mexico sheds 1.6%
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NEW YORK (CNNfn) - Investors in Latin American markets could not shake their concerns over the possibility of a greater-than-expected hike in U.S. interest rates, a move many fear will draw money away from the region in favor of safer investment instruments such as U.S. Treasury bonds.
The yield on the 30-year Treasury, an indicator of long-term interest rate trends, spiked as high as 6.19 percent before settling back to a still-high 6.16 percent.
Weakness on Wall Street contributed to the bearish behavior in the region, where the key bolsas remained in the red, led down by Brazil, where the blue-chip Bovespa stock index was down 371 points, or 3.14 percent, at 11,421 near the end of trade.
"The stock market is basically mirroring the stronger dollar and declining Dow Jones," said one local trader.
The Bovespa posted losses Tuesday and Wednesday on concerns the U.S. Federal Reserve may hike interest rates, triggering a flight of investment from emerging markets to U.S. Treasury bonds.
The local currency, the real, weakened 0.3 percent to close at 1.795 to the dollar, after easing off its low for the day, which was reached as investors pulled dollars out of the market on the back of an uncertain outlook on interest rates.
Investors also were disappointed by a less-than-expected cut in Brazil's key interest rate. After the market's close Wednesday, the country's central bank cut its benchmark Selic rate to 21 percent from 22 percent, a move the market viewed as conservative, traders said.
"The rate reduction was less than expected. This is ruinous news for the market,'' one trader said.
A Reuters poll of economists had predicted that the central monetary authority would lower its key rate to 20.5 percent and that level had been priced into the market.
The rate cut is the ninth reduction since early March when central bank President Arminio Fraga hiked the Selic to 45 percent to ward off inflationary pressures.
Although the bank maintained a bias toward lower rates at its meeting Wednesday, economists predict it will slow the pace at which it trims the Selic rate, which sets the yields on the government's domestic debt and is also used to determine consumer credit rates.
Investors in Mexico stayed on the sidelines, fearing key U.S. interest rates could rise more than the previously anticipated quarter of a point, traders said.
The IPC index of leading shares tumbled 88.17 points, or 1.56 percent, to 5,549.18.
Although players already have priced in an increase of 25 basis points -- a quarter of a percentage point -- in key U.S. interest rates, talk in the market points now to a possible increase of 50 basis points.
Traders said that if U.S. interest rates rise, dollars would head north, erasing interest in the local market.
Players were closely following developments on the U.S. bond market as well. Weakening in the U.S. 30-year bond pushed its yield as high as 6.19 percent.
Market heavyweight Telefonos de Mexico (Telmex) also helped to pull the market down. The company's American depositary receipts finished the day down 2-3/8, or 3.14 percent, at 75-3/4 on Wall Street.
Positive economic news failed to give the market the boost players had hoped. Banco de Mexico said on Thursday Mexico's consumer price index rose 0.37 percent in the first half of June.
The result was less than economists' expectations. Those polled by Reuters had predicted inflation of 0.41 percent for June 1-15.
Banco de Mexico said the increase was the lowest posted for the first half of June since 1994.
Argentina's stocks lowered Thursday with turnover reflecting a boost in liquidity and some profit consolidation after Spain's Repsol took control of Argentine oil firm YPF in a $13.4 billion bid, dealers said.
The MerVal index of most-traded shares closed down 0.77 percent at 540.41, after paring losses somewhat.
Repsol said Thursday that according to provisional results, it had secured 83.24 percent of YPF's capital in the offer, which combined with the nearly 15 percent it already owned now amounts to 98.2 percent.
This caused a sudden flow of funds to the Buenos Aires stock market, helping it close 2.11 percent higher Wednesday despite negative performances by markets in Brazil and New York.
The recession-plagued Argentine government said it will receive a sorely needed $842 million for the sale to Repsol of its remaining 5.3 percent stake in YPF.
On other bolsas in the region, stocks on the IGPA index in Chile were trading down 0.3 percent at 4,718.38 near the end of the day. Shares in Peru, however, managed to buck the region's downward trend, though barely. The Lima General Index inched up 0.05 percent to end the day at 1,649.47.
Markets in Venezuela were closed for a national holiday.
Resources in Toronto lose edge
Toronto stocks fell Thursday as early strength in the resource sector was sapped by day's end.
The Toronto Stock Exchange's 300 Composite index lost 34.27 points, or 0.49 percent, to 6,902.70. Volume was light, with decliners topping advancers 570 to 423 with another 262 issues unchanged.
In stock-related news, the world's two largest public gold mining royalty companies, Franco-Nevada Mining Corp. Ltd. and Euro-Nevada Mining Corp. Ltd., said on Thursday they had agreed in principle to merge.
Overall, the majority of the TSE's 14 subindexes posted losses, led by a 2.9 percent drop in metals and minerals and a 1.09 percent fall in paper and forest products.
The heavyweight financial services sector also took a hit, shedding nearly 1 percent.
Traders expect the markets to remain slow for the next few sessions as investors await confirmation on the direction of interest rates from the U.S Federal Reserve at its Federal Open Market Committee meeting June 29-30. 
-- from staff and wire reports
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