March 18 (Bloomberg) -- HSBC Holdings Plc, Europe's biggest bank by market value, will try to step up underwriting of Brazilian debt, part of a global drive to expand its securities business, said Youssef Nasr, general manager for South America.

``Brazil is of great interest to us and certainly in the next few months you will see increased activity on our part,'' Nasr said in an interview yesterday in Sao Paulo.

HSBC is seeking to build on experience in Mexico and Chile to break into bond underwriting in Brazil, where the government plans to raise $6 billion on international debt markets this year, Nasr said. London-based HSBC rose to seventh in Latin American international bond sales last year from 14th in 2003, underwriting debt sold by Petroleos Mexicanos, Mexico's state oil company, and Chilean state copper company Codelco, data compiled by Bloomberg show.

Brazil's borrowing costs have declined since President Luiz Inacio Lula da Silva took office in January 2003 and helped revive economic growth. The yield on the benchmark bond due 2040 has dropped by about half in the past two years to 9.7 percent. Investors demand 4 percentage points extra yield on a Brazilian 10-year benchmark bond over a comparable maturity U.S. Treasury, down from more than 6 percentage points in August last year.

The economy, South America's largest, grew 5.2 percent last year, the fastest growth in a decade.

HSBC has been building up its New York-based investment banking team dedicated to Latin America and probably has tripled its size over the past three years, Nasr said. The bank also is interested in developments of Brazil's local-currency debt and equity markets, he said. Brazil's foreign currency debt is rated BB-by Standard & Poor's, three steps below investment grade.

Growth Opportunities

``If the country is able to achieve investment grade, that will open up a whole new market,'' said Nasr.

HSBC's to boost investment banking in Brazil is part of its strategy to expand that business around the world, taking advantage of growth opportunities in big emerging market countries, Nasr said. Brazil's widening trade ties, especially with regions like China and the Middle East make the country attractive to HSBC, with its global reach, he said.

``At the moment, the contribution from Brazil is small, but collectively HSBC has growing operations in a number of emerging markets and that's one of the key attractions for investors,'' said Richard Staite, an analyst at SG Securities in London.

While questions persist about the costs of expanding investment banking in richer economies, HSBC's emerging market strategy looks sound, Staite said. ``When it comes to these developing economies, there is good reason to believe that HSBC could be quite effective,'' he said.

Argentina

Declining unemployment will help stoke demand for consumer credit in Brazil, enhancing HSBC's retail business in the country, where it's the ninth-biggest bank by assets. The bank, which has spent $2 billion since 1997 building its business in Brazil, predicts credit growth of 20 percent this year.

Nasr also said he sees business rebounding in Argentina as economic growth fuels demand for credit and helps the bank recover bad debts caused in the country's debt default. HSBC expects loan growth of 20 percent in Argentina this year, figure that includes adjustments to loan loss provisions.

``On a gross basis, you are probably seeing very significant evidence of an increase in loan growth in Argentina which is coming from two sources,'' Nasr said. ``One is new lending and the second is pulling back provisions on previously distressed debt.''

Nasr said a new loan agreement between the International Monetary Fund and Argentina would help the country to maintain growth rates. Argentina's economy grew 9 percent last year, its fastest pace of growth since 1992.

IMF Loans

``It is probably desirable if an agreement can be reached with the IMF because it is clear that for the recovery in Argentina to continue, at some stage there is going to be a need for new capital,'' said Nasr. ``To the extent that an agreement with the IMF reassures sources of capital about the desirability of investing in Argentina, I think that's a positive thing.''

Brazil and Argentina contributed 2.3 percent of Hob's global pre-tax profit in 2004, up from 0.9 percent a year earlier.

To contact the reporter on this story: Charles Penty in London at cpenty@bloomberg.net

Last Updated: March 18, 2005 10:39 EST