Latin American markets rally, but region still shaky

CARACAS, Venezuela — Stock exchanges rebounded for the second day throughout Latin America on Tuesday, a hopeful sign for an economically buoyant region thrown off balance by the global financial crisis.

Colombia and Argentina led the way, as their stock exchanges each rose by more than 9 percent. Peru's stocks rose by 6 percent.

Brazil's Bovespa index closed up slightly Tuesday after jumping by 15 percent Monday, the biggest single advance since 1999.

Mexico's stock exchange climbed by 11 percent Monday and rose slightly again Tuesday.

"Last week was such a devastating week that you can't help but feel better," Deborah Riner, the chief economist for the American Chamber of Commerce of Mexico, said from Mexico City. "You began the week wondering: What other shoe is going to drop? The results suggest that maybe the recent moves will work."

The stock exchange rises came after the United States and Europe adopted sweeping plans to rescue faltering banks with billions of dollars in lifelines. In the U.S., markets jumped by record levels Monday but fell back Tuesday and closed down nearly 1 percent.

"It shows that the authorities have their big guns trained on the problem," said Brad Durham, the managing director of EPFR Global, a Massachusetts-based firm that tracks investment flows.

Central banks throughout Latin America also have reduced the amount of reserves that private banks must hold, to free up money for banks to lend to one another and to private companies.

Brazil's move to ease reserve requirements will inject $45.5 billion into the financial system next month, the country's central bank estimated.

The Inter-American Development Bank on Monday offered $6 billion in loans to private companies that are having trouble getting bank loans and promised to accelerate planned loans for public works and anti-poverty projects.

"The origin of the crisis is outside of the region but can have potentially serious repercussions in Latin America and the Caribbean," IDB President Luis Alberto Moreno said in a statement.

Pedro-Pablo Kuczynski, a longtime investment banker who served as Peru's prime minister, said that Latin American governments seemed well positioned to ride out the economic storm as long as it didn't turn into a major hurricane.

"Latin America is in much better shape than before," he said from Lima.

Over the past five years, Latin America has been enjoying its strongest stretch of economic growth in 40 years, according to the Economic Commission on Latin America and the Caribbean, a United Nations group based in Santiago, Chile. The group predicts a 4.7 percent growth rate in the region this year and 4 percent next year.

Governments have used the good times to reduce foreign debt, increase foreign reserves, reduce poverty and eliminate budget deficits.

Chilean President Michelle Bachelet said Monday, for example, that her country should weather the financial crisis — it's built $23 billion in foreign reserves thanks to record earnings from copper exports — but she admitted that her economy isn't invulnerable.

"We have diversified exports, we have policies of fiscal discipline, important savings, a very small public debt," Bachelet said. "But I want to be very clear: Chile is well prepared but cannot think it is immune."

Governments throughout the region have been reducing their expected rates of economic growth.

Colombia, for example, now expects to grow by 3.5 percent in 2009, down from an earlier estimate of 5 percent. Riner now thinks that Mexico will grow by 1.3 percent next year, down from a previous estimate of 2.1 percent.

Mexico and Central America are especially vulnerable to the economic slowdown in the United States because their economies depend on exports to their northern neighbor.

Until this week's rally, Latin America's overall stock index had plummeted by 61 percent since mid-May, according to a research report by Citigroup analyst Geoffrey Dennis, including by 27 percent last week alone.

Dennis' report predicted that Latin American stock markets may gain back as much as 35 to 40 percent of the 61 percent drop.

"Then, markets should stall out again as they wait for the global economy to improve," he wrote. "It may be a long wait, perhaps past mid-2009."


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