Latin American stocks gained slightly on Wednesday as oil prices hit a 2009 record and Brazilian inflation slowed, though not likely enough to stall expected interest rate cuts.
Brazil's Ibovespa index rose 0.5 percent to 53,411 as the government said annual inflation dipped to 5.2 percent in May from 5.5 percent last month. Shares in iron ore producer Vale gained 1.12 percent and state-run oil company Petroleo Brasileiro rose 1.10 percent after world crude prices briefly topped $71 a barrel, their highest this year. The two companies comprise nearly a third of the index.
Brazil's currency weakened about 0.01 percent to 1.94 reals to the U.S. dollar ahead of what will likely be the country's fourth interest rate cut this year. Analysts at Barclays Capital predict the central bank will slash its benchmark Selic rate by 75 basis points to a record 9.5 percent on Wednesday night in an effort to boost growth.
Latin America's largest economy slipped into recession in the first quarter, shrinking 1.8 percent from the year-ago period as the world economic crisis slashed demand for exports and slowed domestic consumption, Brazil's government said this week.
Lower interest rates on bonds and other assets often push investors to seek higher-yielding equities, driving up stocks.
Mexico's IPC index, meanwhile, gained 0.3 percent to 25,184, its second-highest close since Oct. 1. Shares in Monterrey-based cement maker Cemex rose 3.9 percent, while supermarket company Organizacion Soriana gained 3.2 percent and miner Grupo Mexico climbed 2.8 percent. The three companies make up some 10 percent of the IPC.
The peso was largely unchanged at 13.59 to the dollar. It will likely continue to underperform in coming months as the risk that ratings agencies will downgrade its debt are "running very high," RBC Capital Markets said Wednesday in a note to investors.
Elsewhere, Chile's IPSA stock index gained 1.1 percent to 3,250, while Argentina's Merval rose 0.8 percent to 1,655 and Colombia's IGBC rose 0.2 percent to 9,452. Peru's IGBVL lost 0.7 percent to 14,101.
Latin American stocks have been pummeled by the world economic crisis, which has slashed demand for the commodity exports on which many of the region's biggest companies rely. Yet local markets have outpaced gains in the U.S. and Europe as investors bet that an economic recovery will revive demand for risk and raw materials.
Both Brazil's Ibovespa and Mexico's IPC indexes have soared 50 percent from their lows on March 3.
U.S. stocks slipped on Wednesday as the U.S. government sold $19 billion in 10-year U.S. Treasury notes, pushing yields higher.
Investors worry that the swelling U.S. debt load will bring higher interest rates, potentially slowing a recovery by increasing consumer borrowing costs and discouraging spending even while inflation climbs.
So-called Beige Book data released by the U.S. Federal Reserve on Wednesdayshowed that the "downward trend is showing signs of moderating" in five of 12 U.S. regions, but analysts said investors would need more positive economic news for markets to rise.