Latin American stocks edged up in volatile trade on Friday as stalled US debt talks and weaker-than-expected US growth ended a month where Brazil posted its worst run in more than a year. The MSCI Latin America stock index rose 0.36 percent, but regional indexes were mixed, trading little changed.
The United States - the world's biggest economy - edged closer to a catastrophic default as acrimonious talks over raising the debt ceiling remained stalled. A US default would reverberate around the world and could push that still-fragile economy back into recession.
The talks have kept investors jumpy and added to volatility in global markets. Latin American stocks moved into and out of negative territory on Friday. "When you combine politics with economics, it's not a good formula," said Adriano Moreno, a strategist with Futura Investimentos. "We're basically just waiting for the latest chapter in this American soap opera."
Even if lawmakers manage to raise the debt limit, they may not take any significant measures to reduce the deficit. That would raise the chance of a ratings downgrade of US debt that could startle global markets. On the other hand, if lawmakers approve too many short-term budget cuts, investors could worry that growth will be hobbled.
"Right now the market seems to believe they will come up with something," said Rodolfo Navarrete, head of analysis at brokerage Vector in Mexico City. "But if they clamp down too hard on spending, another recession is in the cards." Data on Friday added to the gloom: The US economy grew less than expected in the second quarter and growth braked sharply in the prior quarter.
If global factory surveys due out next week deepen concerns about slowing growth around the world, stocks could fall even more, analysts said. Brazil's benchmark Bovespa stock index moved up 0.2 percent. The index recorded its worst month since May 2010 with an around 5.7 percent loss. It hit its lowest level since May 2010 this month, but rebounded in the last two sessions.
Shares of mining giant Vale, the world's largest producer of iron ore, dropped 1.9 percent. The company late on Thursday reported lower-than-expected second-quarter earnings. "Vale's Q2 results disappointed on a combination of lower-than-expected revenues and slightly higher-than-expected costs," BTG Pactual analysts wrote to clients, adding that they remain positive on the stock. "We would exploit any share price weakness due to Q2 disappointment and increase Vale exposure."
Brazilian airline Gol Linhas Aereas sank 21.6 percent after it lowered its outlook for 2011 operational margins on Thursday, as rising costs for fuel and additional personnel are expected to eat into earnings. Shares of Brazil's Embraer, the world's third-largest commercial planemaker, jumped 7.17 percent after the company raised its outlook for 2011 revenue and operational earnings.
Mexico's IPC index rose 0.23 percent, reversing losses that took it below its 50-day simple moving average. Local pension funds are looking for bargains after equity investment limits were raised this week and pension funds could keep local stocks from falling as much as other markets, Deutsche Bank analysts wrote in a report.
Top local retailer Wal-Mart de Mexico added 1.82 percent. Chile's IPSA index dipped 0.2 percent, with July marking the worst month since October 2008. Shares in LAN, one of Latin America's dominant airlines, lost 3.13 percent.