Closer cooperation between the two trading blocs could help South America negotiate more favorable terms with the United States for the proposed hemisphere-wide Free Trade Area of the Americas. It would create a single trade bloc stretching from Alaska to Patagonia by 2005.

Participants were meeting behind closed doors Thursday and did not disclose what sort of progress they had made on economic issues. However, news that Paraguayan president Luis Gonzalez Macchi faces impeachment on charges of corruption sent ripples of concern among delegates.

"There is a democratic clause characterizing Mercosur. That means full respect of the democratic rule," Brazilian foreign Minister Celso Lafer told reporters during a break from the discussions.

Mercosur has used its power before to ensure that democracy prevailed in Paraguay. Countries that do not comply with the organization's democracy rule face the threat of being expelled from the trade bloc.

Gonzalez Macchi, among the presidents attending the Mercosur conference, told reporters the charges were politically motivated and said he was ready to defend himself before Paraguayan lawmakers.

The summit also aims to analyze ways to invigorate the trade bloc considering the political and financial troubles that have rocked the region this year.

Gonzalez Macchi said he expected a Mercosur declaration would be issued Friday addressing strikes in Venezuela designed to unseat Venezuelan President Hugo Chavez, and the economic crisis in Argentina.

Brazil, Argentina, Uruguay and Paraguay form Mercosur, a common market established in 1991 whose combined gross product is nearly US $1 trillion. Chile and Bolivia are associate members.