Wall Street rebounds on Brazil outlook
By David Lazarus
SAN FRANCISCO (Wired) - The Brazilians are tightening their belts -- and Wall Street thinks it's just great. A US$23.5 billion austerity package announced by the country's government, coupled with pending aid from the International Monetary Fund, pushed stocks back into positive territory Wednesday.
In relatively subdued trading, the Wired Index rose 5.30 points to close at 394.83. The Dow Jones Industrial Average ended 5.93 higher at 8371.97.
The Nasdaq gained 17.44 points to 1735.07, and the S&P 500 was up 2.77 at 1068.11.
Share prices had declined Tuesday as rumors swirled that Brazil was on the verge of devaluing its currency and defaulting on millions of dollars in IOUs-a prospect that raised unhappy memories of Russia doing the same. Now traders are thinking that the Brazilian government's one-two punch of tax increases and spending cuts may keep the country's currency intact and should pave the way for a multibillion-dollar credit line from the IMF.
While only a minuscule fraction of US trade is with Russia, America does about a fifth of its business with Latin America. Brazil, now running an approximately $60 billion budget deficit, is ground zero for preventing the so-called Asian Contagion from drifting north.
''Brazil might be a small piece of the puzzle, but the puzzle is interrelated,'' said Jeff Goverman, research director at Pacific Crest Securities. ''If they devalued their currency, it would put more pressure on other economies.''
As it stands, US traders can now worry instead about the course of corporate earnings, which are generally lower but not nearly as much as feared earlier. ''I think we're probably somewhere close to fair value,'' Goverman said of current share prices, adding that further volatility is likely.
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