Nov. 6 (Bloomberg) -- Brazil’s currency posted its biggest weekly gain in three months, heightening speculation the government may be planning measures to curb dollar inflows after a tax on stocks and bonds failed to reduce gains in the real.

The real rose 2.4 percent against the U.S. dollar this week, the second-best performer among major currencies behind the South African rand. The gain halted two weeks of declines and erased losses since the government announced on Oct. 19 a 2 percent tax on foreign purchases of stocks and fixed-income securities. It slipped 0.2 percent to 1.7202 per dollar today.

The real has benefited from “an overall risk-positive week,” said Greg Anderson, a New York-based currency strategist at Societe Generale. The dollar has weakened against major currencies and investors are reluctant to sell Brazilian assets because they would have to pay the so-called IOF tax if they reenter the country’s markets, he said.

JPMorgan Chase & Co. said today additional steps are likely if the real gains more than other currencies against the dollar.

The government may try “administrative policies” such as allowing the Treasury to join the central bank in foreign- currency intervention and “liberalizing” the real including allowing foreigners to acquire Brazilian securities in foreign currency, JPMorgan strategist Ben Laidler wrote in a note to clients.

The government will issue real-denominated bonds on international markets, Valor Economico reported today, citing an interview with Finance Minister Guido Mantega. The transactions would contain dollar flows and the Brazilian currency’s appreciation, the newspaper said.

Expanding Tax

An increase in the IOF tax may be applied to other kinds of transactions while exempting initial public offerings, Estado de S. Paulo reported. The Finance Ministry didn’t return calls by Bloomberg News seeking comment.

Central bank President Henrique Meirelles said on Nov. 3 Brazil is conducting studies to remove “artificial impediments” to outflows of foreign currencies, and that the country needs to “modernize” its exchange-rate system.

“The modernization of foreign-exchange legislation is seen positively,” said Silvio Campos Neto, chief economist at Banco Schahin SA. The rules being discussed won’t stop the real’s appreciation, he said in a telephone interview from Sao Paulo.

The real is the world’s best performing major currency this year, with a 35 percent gain. The benchmark Bovespa stock index has rallied 72 percent, spurred by record-low interest rates and a rebounding economy.

Exporters Hurt

Brazilian companies are selling goods abroad at a loss after the real’s rally this year, Jose Augusto de Castro, vice- president of the Brazilian Foreign Trade Association, said yesterday. Further strengthening in the real may drive away foreign visitors before Rio de Janeiro hosts the 2016 Olympics, Tourism Minister Luiz Barretto said on Oct. 30.

Traders at Banco Prosper SA and Finabank Corretora de Cambio said they expect the government to announce measures to stem the real’s appreciation.

An announcement may come at “any moment,” Jorge Knauer, head of proprietary trading at Banco Prosper in Rio de Janeiro, said yesterday in a phone interview.

Ovidio Pinho Soares, currency trader at Finabank Corretora, expects a package will be announced next week.

“The government saw the IOF didn’t have an impact and now people are afraid they have a card up the sleeve,” he said in a phone interview from Sao Paulo yesterday.

The government is preparing measures that will allow foreign investors to buy Brazilian assets without exchanging currency, Folha de S. Paulo reported yesterday, without saying where it got the information. The central bank may allow domestic depositors to open dollar-denominated accounts with local banks, Estado de S. Paulo reported yesterday.

‘Fundamentals Are Good’

“Any measure that is announced can’t have a big impact on the very short term,” Thiago Caiuby, a currency trader with BES Investimento in Sao Paulo, said today. “The market is concerned, but fundamentals are good” for the real, he said.

Brazil’s economy can grow at least 5 percent next year, President Luiz Inacio Lula da Silva said yesterday at a conference in London.

RBC Capital Markets said today it’s bullish on the real in the “medium term” because of the nation’s economic growth outlook.

To contact the reporter responsible for this story: Camila Fontana at cfontana@bloomberg.net

Last Updated: November 6, 2009 16:03 EST