By Carla Mozee

Mexican stocks powered higher Thursday, with climbs in banking stocks after an upgrade of the sector, and Brazilian equities gained in the wake of an interest-rate cut by the central bank.

All sectors tracked in the Mexican market were higher except for the transportation group. That contributed to a 6% jump in the Mexico's IPC equity index to 18,864.87.

A rally in U.S. stocks, in part on signs of fiscal improvement at automaker General Motors Corp. (GM) and a less-than-expected decline in retail sales in February, also helped put a positive bid in the Mexican market. Mexico has a stake in an economic recovery in the U.S., its largest trading partner.

The iShares MSCI Mexico Index Fund (EWW), an exchange-traded fund, also climbed, by 7.8%.

Deutsche Bank issued an overweight rating on Mexican financials, saying that it prefers to get exposure to the country's consumer base through that sector rather than the retail sector.

"Our call is strictly based on valuations and the limited impact that the economic downturn should have on asset quality supported by low indebtedness levels by the population," wrote banking analyst Mario Pierry in a note to clients.

The broker said its favorite in the group is Banorte, and noted that it trades at 5.4 times earnings this year.

The stock has dropped more than 40% since its peak in early January in part on investor fears that "the controlling shareholder -- the Gonzalez family -- could use the bank to provide help to Sell-rated Gruma (GMK) -- another company under its control -- which has disclosed material derivatives-related losses," said Deutsche Bank.

Banorte shares rose 2.7% but microlender Banco Compartamos lost its grip on gains, falling 1.2%. Grupo Financiero Inbursa was the standout of the group with a leap of 24%

Also higher in Mexico City were shares of cement maker Cemex (CX), up 14%. The shares have been recovering from a recent sell-off that stemmed from its plans -- now abandoned -- for an international bond issue to raise proceeds to refinance debt.

Electronics retailer Grupo Elektra was also a standout as its shares jumped 21%. Larger rival Wal-Mart de Mexico (WMMVY) rose 3.2%, and market heavyweight America Movil (AMX) shares rose 3.2%.

Brazils' big cut

Brazil's Bovespa index rose 0.9% to 39,151.86, fighting back from earlier losses after the central bank late Wednesday issued a rate cut of 150 basis points, bringing its key Selic rate to 11.25%. The Selic rate was established at that level in 1996.

Banking stocks firmed, led by a 2.8% rise in Unibanco (UBB). Itau (ITU) rose 2.58%, Bradesco (BBD) gained 2.63% and Nossa Caixa rose 0.3%. Shares of federally run Banco do Brasil picked up 1.2%.

Economists polled by Dow Jones Newswires had widely expected the rate to be lowered by 100 basis points. Analyst calls for a cut between 150 to 200 basis points began to increase late last week.

Brazilian interest-rate policymakers said in a statement that they will continue to track developments from the inflation front, leaving the door open for the possibility of further cuts.

The "size is the step in the right direction, but it could've been more than this," said Claudio Freitas, senior Latin American markets analysts at Zacks Investment Research, in a telephone interview from Rio de Janeiro.

"Inflation in Brazil is quite resilient...there will be an adjustment in [utility] tariffs here by about 10% this year," he said. The central bank "could've acted preemptively, imagining that inflation will go down because the economy is not growing, but they are very orthodox and conservative," said Freitas, who said he didn't consider the move an aggressive one.

Earlier this week, a report showed that gross domestic product in the fourth-quarter of 2008 fell 3.6% from the third quarter of 2008.

Freitas projected the central bank will make more interest-rate cuts this year and bring the Selic down to 9.5%.

"After this cut, we have a real interest rate of 6.75%, among the highest in the world...so we have a long way down for interest rates in Brazil."

RBC Capital Markets wrote Thursday that it considered the central bank's move aggressive, and that it still has room to do more, in part because the "economic situation has worsened substantially" in recent months.

RBC said it now expects the Selic rate to be cut by another 150 basis points in the first half of this year, to bring it down to 9.75% by the middle of 2009, followed by an extended pause during the second half of the year.

Chile's IPSA rose 0.3% to 2,435.42 ahead of an expected decision for a rate cut of 175 basis points from the country's current rate of 4.75%.

Argentina's Merval rose 2% to 1,011.86.