ott------ War will provoke a generalized flight to quality. You're going to see the U.S. Treasury
market up and the stock market down along with emerging markets debt,'' said Thomas
Trebat, managing director for emerging markets research at Salomon Smith Barney.
''The Iraq situation is one more aspect of a generally gloomy end-of-year environment,'' Trebat added.
Investors bid up U.S. Treasuries and other traditional safe havens on Wednesday and oil prices spiked higher amid signs a
military strike amid the latest row between Iraq and the United Nations over weapons inspections.
U.S. bombers and warships armed with more than 400 cruise missiles stood ready in the Gulf, and defense officials said they
were awaiting an expected order from President Bill Clinton to attack.
In addition, the lack of progress toward social security reform by Brazil's Congress this month has begun to weigh more heavily
on the market with the approach of the new year. Analysts said hope was scarce that the new Congress, to be seated in
January, will implement the reforms.
''People continue to be worried about Brazil,'' said Paul Masco, chief emerging markets debt trader at Salomon Smith Barney
Inc.
Underlining the pessimism, Brazilian stocks were extending their losses in late afternoon trade Wednesday on sales linked to the
expiration of Bovespa index futures contracts, traders said.
The Bovespa index tumbled 6.33 percent to 6495 points by 1635 local/1835 GMT. The market's bellwether issue, Telebras
preferred receipt , was also down 6 percent at 90.60 reais.
Spreads of emerging bonds widened by about 11 basis points over U.S. Treasuries to 1173 in the late afternoon, said Masco,
who cited J.P. Morgan's Emerging Markets Bond Index.
Benchmark Brazil C bonds were down 1-7/8 to bid 58-3/4, Argentina PAR bonds were down 1-5/8 to bid 71 and Mexico
PAR bonds were down 3/8 to bid 77
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