A year-end rally in Latin American stocks fizzled this week as renewed fears about Europe dragged down equities and analysts expected volatility to persist in the next weeks. Stocks in Mexico and Brazil seesawed through Friday's session, with Mexico edging higher at the close while Brazilian stocks gave up early gains to fall after Fitch warned that it may cut ratings on some European nations.
"It's been a year-end gloom. The volumes are smaller and it already shows that some investors are giving up," said Joao Luiz Piccioni at Brazil's Petra Asset. Brazil's Bovespa index shed 3.7 during the week, its worst performance since late September, while Mexico's benchmark lost 3.1 percent.
Stocks had jumped in early December on hopes European leaders could make headway and stem fears their debt crisis could spark another global financial crisis, but most of those gains have now been erased. European leaders have been unable to reassure investors that there will be a quick solution to a 2-year-old sovereign debt crisis, despite recent agreements to enact tighter fiscal integration within the bloc.
Latin American markets received some support this week from better-than expected data in the United States, one of the region's top trading partners. US consumer prices were flat in November, in a sign of cooling inflation, which may give the Federal Reserve more room to help the world's largest economy recover.
"(Markets) have reacted a bit positively to the news from the United States, but the debt crisis in Europe is going to keep investors fearful," said Guillermo Araya, an analyst at Chilean brokerage K2. The MSCI Latin American stock index rose 0.45 percent, but still clocked a weekly loss of around 4.7 percent, its worst since late November.
Brazil's benchmark Bovespa stock index lost 0.42 percent as state oil firm Petrobras lost nearly 1 percent and Banco do Brasil, the nation's largest bank by assets, fell 1.52 percent. "For the rest of the year into the next, we are still going to see a lot of volatility, and I don't think we're going to have particularly good performance in the market," said Jankiel Santos, chief economist of BES Investimento in Sao Paulo.
"People are going to have to look at investments on a case-by-case basis. It's not like you can just put money in the index and expect it to perform." Brazil's MMX, the mining company controlled by billionaire Eike Batista, gained 2.53 percent after Thursday's announcement that a consultancy had certified reserves at its $2.3 billion Serra Azul mine project at nearly 1 billion tonnes of iron ore.
Mexico's IPC index edged up 0.13 percent as cement maker Cemex gained 4.75 percent. Broadcaster Televisa lost 1.81 percent. Mexico is particularly sensitive to developments in the US economy, the destination for 80 percent of the country's exports.
Mexico's central bank policymakers are divided over whether they should cut interest rates in the future to help the economy raise rates to fend off inflation risks from a weak peso, according to the minutes of its last meeting released on Friday. Chile's IPSA index edged up 0.05 percent as retailer Cencosud gained 2.24 percent and the gauge closed the week about flat.